Australian water markets: trends and drivers 2007 08 to 2009 10

Australian water markets: trends and drivers 2007 08 to 2009 10 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 1

Commonwealth of Australia 2011 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Commonwealth. Requests and enquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Attorney General s Department, Robert Garran Offices, National Circuit, Barton ACT 2600 or posted at www.ag.gov.au/cca. Online ISBN 978-1-921853-18-0 Australian water markets: trends and drivers, 2007 08 to 2009 10, June 2011 Published by the National Water Commission 95 Northbourne Avenue Canberra ACT 2600 Tel: 02 6102 6000 Email: enquiries@nwc.gov.au Date of publication: June 2011 Design by Spectrum Graphics An appropriate citation for this publication is: National Water Commission 2011, Australian water markets: trends and drivers, 2007 08 to 2009 10, NWC, Canberra

Foreword The National Water Commission is pleased to release its report Australian water markets: trends and drivers, 2007 08 to 2009 10, a companion report to the Australian water markets report series. The annual Australian water markets reports provide statistics that summarise activity in Australian water markets, together with information on water market structures. The aim of this synthesis report is to analyse trends in market activity (how much water is being traded and where), as well as the drivers influencing market outcomes (why is water being traded). Although the focus is on the southern Murray Darling Basin where the majority of trade occurs, the report also provides information on trade outside the basin. This report shows the links between water availability and water allocation trade. Changes in rainfall, inflows and storage levels control allocation levels, and therefore the volume of water available for trade. Water availability and announced allocation levels affect seasonal demand for additional water, which in turn affects the extent and volume of allocation trade. The price of allocation trades is also influenced by water availability, with significant variability in allocation prices over time. The short-term water needs of different types of agriculture are key drivers of allocation trading. Crops such as rice have greater year-to-year flexibility in their water requirements, while permanent horticultural plantings have water demands that must be met each year. Regional patterns of agriculture have therefore influenced the direction of intervalley trade, especially during dry years. For example, in 2007 08, growers in the Murrumbidgee and the Goulburn valleys with more flexible water needs took advantage of the high price for water allocations, trading water to areas dominated by permanent plantings such as orchards and vines. This report shows that trading in the water entitlement market, particularly in the southern Murray Darling Basin, has grown steadily. Unlike the water allocation market, the level of trading in the entitlement market is generally driven by longterm concerns such as business and risk management, and the entry or exit of participants in the irrigated agriculture sector. Changes to policy and regulation (such as water trading rules) can also influence entitlement trading. The Australian Government s purchases of water entitlements for the environment accounted for 0% of trades in 2007 08, 4% in 2008 09, and 36% in 2009 10. Prices for entitlement trades have remained relatively steady for the last three years. The growth of Australia s water markets over recent years demonstrates that the market is able to serve water users needs. Australia s water markets continue to give water users flexibility when responding to variability in water availability. Markets also enable water users to more effectively manage production and business decisions. The Commission thanks the Bureau of Meteorology and all entities named under the Water Regulations 2008 for their work in collecting and providing the water trade data that supports this report. The Commission also acknowledges Deloitte Touche Tohmatsu for its contribution to the preparation of the report. The Commission would welcome feedback on the report. James Cameron Chief Executive Officer June 2011 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 1

Contents 1. Introduction 7 1.1 Purpose of the report 8 1.2 Overview of the water market 8 1.3 Market segments 12 1.4 Summary of market outcomes 13 1.5 Data and terminology 15 1.6 Report overview 15 2. Overview of the southern MDB 17 2.1 Physical layout and trading zones 18 2.2 Climate, water supply and major storages 19 2.3 Location and composition of entitlements 20 3. Allocation trade in the southern MDB 23 3.1 Allocation levels 24 3.2 Allocation trade 26 4. Entitlement trade in the MDB 39 4.1 Volume of entitlement trade 40 4.2 Number of entitlement trades 41 4.3 Prices for entitlement trades 42 4.4 Water entitlement market drivers 43 5. Trade outside the MDB 49 5.1 Allocation and entitlement trade 50 5.2 Non-MDB trading, by jurisdiction 51 6. Summary 57 6.1 Water allocation market 58 6.2 Water entitlement market 58 Appendix A 60 References 75 Abbreviations and acronyms 75 2 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Tables Table 1.1: Market segments 12 Table 1.2: National Water Initiative-equivalent entitlement terminology, 30 June 2010 15 Table 2.1: Entitlements on issue, 2009 10 (ML) 20 Table 2.2: Key irrigated agricultural industries, southern MDB 21 Table 4.1: Victorian irrigation districts nearing the 10% limit at the end of 2008 09 Table A.1: Volume of allocation and entitlement trades in the southern MDB, 1983 84 to 2009 10 Table A.2: Volume of allocation and entitlement trades, northern MDB and non-mdb, 2007 08 to 2009 10 (ML) Table A.3: Rainfall and storage levels of major dams in the MDB, 1989 90 to 2009 10 Table A.4: Low-, general and high-reliability/security entitlements, southern MDB, by volume Table A.5: End-of-season allocations to high- and low-security entitlements, southern MDB, 1998 99 to 2009 10 Table A.6: Water allocation levels and proportions traded, southern MDB, 1998 99 to 2009 10 Table A.7: Number and average size of allocation trades, southern MDB, 2007 08 to 2009 10 Table A.8: Average water allocation and average allocation trade price, MDB, 2007 08 to 2009 10 Table A.9: Volume and number of allocation trades in the southern MDB, 2007 08 to 2009 10 Table A.10: Net allocation trade between trading zones, southern MDB, 1998 99 to 2009 10 (ML) Table A.11: Net allocation trade between trading zones, southern MDB, 1998 99 to 2009 10 Table A.12: Rice production, rice prices and water allocation prices, Murrumbidgee, 2005 06 to 2009 10 Table A.13: Wine grape production, wine grape prices and water allocation prices, SA Murray, 2005 06 to 2009 10 Table A.14: Milk production, hay prices and water allocation prices, Goulburn, 2005 06 to 2009 10 Table A.15: Water allocation trading in South Australia in 2007 08 Table A.16: Proportion of total entitlement trade in the southern MDB, 2007 08 to 2009 10, by reliability class Table A.17: Number and average size of entitlement trades, southern MDB, 2007 08 to 2009 10 Table A.18: Number and average size of entitlement trades, southern MDB, 2007 08 to 2009 10 Table A.19: Average prices for entitlement trades in the southern MDB, 2007 08 to 2009 10 ($/ML) Table A.20: Average prices for entitlement trade in the southern MDB, by state and reliability class ($/ML) Table A.21: Commonwealth water purchases in the MDB, 2007 08 to 2009 10 (ML) Table A.22: Volume and number of trades out of NSW irrigation infrastructure operator districts, 2007 08 to 2009 10 Table A.23: 4% trade-out limit and total trade out of affected irrigation areas in Victoria 72 Table A.24: Allocation trades outside the MDB, 2007 08 to 2009 10 (GL) 73 Table A.25: Entitlement trades outside the MDB, 2007 08 to 2009 10 (GL) 73 Table A.26: Trade volumes and prices, Western Australia, 2007 08 to 2009 10 73 Table A.27: Trade volumes and number, Tasmania, 2007 08 to 2009 10 74 Table A.28: Volume of medium reliability entitlement trade and average price for the Nogoa Mackenzie Water Supply 74 Scheme and the Bundaberg Water Supply Scheme, 2003 04 to 2009 10 46 60 60 61 61 62 62 63 63 65 66 66 67 67 67 67 69 69 70 71 72 72 72 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 3

Figures Figure 1.1: Simplified example of an unbundled entitlement system 9 Figure 1.2: Simplified example of trading in an unbundled entitlement system 10 Figure 1.3: Entitlement trade 11 Figure 1.4: Allocation trade 11 Figure 1.5: Volume of allocation and entitlement trades in the southern MDB, 1983 84 to 2009 10 (ML) 13 Figure 1.6: Volume of regulated allocation and entitlement trades in the northern MDB, 2007 08 to 2009 10 (ML) 14 Figure 1.7: Volume of allocation and entitlement trades outside the MDB, 2007 08 to 2009 10 (ML) 14 Figure 2.1: Trading zones in the southern MDB 18 Figure 2.2: Rainfall and storage levels of major dams in the MDB, 1989 90 to 2009 10 19 Figure 2.3: Percentage of total entitlements on issue (low-, general and high-reliability/security entitlements, southern 21 MDB, by volume Figure 3.1: End-of-season allocations to high- and low-security entitlements, southern MDB, 1998 99 to 2009 10 25 Figure 3.2: Volume of allocation trade, southern MDB, 1983 84 to 2009 10 (ML) 26 Figure 3.3: Water allocation levels and proportion traded, southern MDB, 1998 99 to 2009 10 27 Figure 3.4: Number and average size of allocation trades, southern MDB, 2007 08 to 2009 10 27 Figure 3.5: Average water allocation and average allocation trade price, southern MDB, 2007 08 to 2009 10 28 Figure 3.6: Volume and number of allocation trades in the southern MDB, 2007 08 to 2009 10 28 Figure 3.7: Net interstate allocation trade, southern MDB, 1998 99 to 2009 10 (ML) 30 Figure 3.8: Net allocation trade between trading zones, southern MDB, 1998 99 to 2009 10 (ML) 31 Figure 3.9: Significant interzone water allocation trading, southern MDB, 2007 08 32 Figure 3.10: Significant interzone water allocation trade, southern MDB, 2008 09 33 Figure 3.11: Significant interzone water allocation trade, southern MDB, 2009 10 34 Figure 3.12: Rice production, rice prices and water allocation prices, Murrumbidgee, 2005 06 to 2009 10 35 Figure 3.13: Wine grape production and prices, and water allocation prices, SA Murray 2005 06 to 2009 10 36 Figure 3.14: Milk production, hay prices and water allocation prices, Goulburn, 2005 06 to 2009 10 36 Figure 3.15: Water allocation trading in South Australia in 2007 08 38 Figure 4.1: Entitlement trade volumes in the southern MDB, 1983 84 to 2009 10 (ML) 40 Figure 4.2: Entitlement trade volumes in the northern MDB, 2007 08 to 2009 10 (ML) 40 Figure 4.3: Total entitlement trade in the southern MDB, 2007 08 to 2009 10, by reliability class 41 Figure 4.4: Number and average size of entitlement trades, southern MDB, 2007 08 to 2009 10 41 Figure 4.5: Number and volume of entitlements traded, southern MDB, 2007 08 to 2009 10, by month 42 4 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Figure 4.6: Average prices for entitlement trades in the southern MDB, 2007 08 to 2009 10 ($/ML) 42 Figure 4.7: Average prices for entitlement trades in the southern MDB, 2007 08 to 2009 10, by state and 43 reliability class Figure 4.8: Commonwealth water purchases in the MDB, 2007 08 to 2009 10 44 Figure 4.9: Volume and number of trades out of NSW irrigation infrastructure operator districts, 2007 08 to 2009 10 Figure 4.10: 4% trade-out limit and total trade out of affected irrigation areas in Victoria Figure 5.1: Allocation trade outside the MDB, 2007 08 to 2009 10 (GL) Figure 5.2: Entitlement trade outside the MDB, 2007 08 to 2009 10 (GL) Figure 5.3: Trade volumes and prices, Western Australia, 2007 08 to 2009 10 Figure 5.4: Trade volumes and numbers, Tasmania, 2007 08 to 2009 10 Figure 5.5: Volume of medium reliability entitlement trade and average price, Nogoa Mackenzie and Bundaberg water supply schemes, 2003 04 to 2009 10 45 47 50 51 52 53 55 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 5

Section 1 Introduction 1.1 Purpose of the report 8 1.2 Overview of the water market 8 1.3 Market segments 12 1.4 Summary of market outcomes 13 1.5 Data and terminology 15 1.6 Report overview 15

1.1 Purpose of the report In December 2010, the National Water Commission released the Australian water markets report 2009 10 (NWC 2010a), which was the Commission s third annual statement of water trading activity across Australia. The objective of the Australian water markets report series (the AWMR series: NWC 2008, 2009, 2010a) is to inform market participants and other interested parties about the structure of water markets in Australia by documenting trading products, activity and prices. The AWMR series focuses on the market institution and describes the institutional, regulatory and legislative arrangements that enable water trade in each jurisdiction. This report, Australia s water markets: trends and drivers, 2007 08 to 2009 10, identifies and analyses trends in water market activity and key drivers of market outcomes. It draws on the three years of data collected for the AWMR series and builds on the series by providing additional analysis and explanation of trends and activity over an extended timeframe. This report also draws from a range of other data sources for statistics before 2007 08, and related water markets reports prepared by the Commission, such as The impacts of water trading in the southern Murray Darling Basin (NWC 2010b), in order to provide some insights into recent activity in Australia s water markets. The report includes: + summary information on the number of trades, volume of trading and prices at which water has traded + analysis of the supply of and demand for water, including where water has been traded from and to + discussion about why the water market is acting in the way it does, including drivers of market activity. The report focuses on the period covered by the AWMR series (2007 08 to 2009 10), as that is the period for which the most comprehensive and reliable dataset is available. However, where relatively comparable data is available, the report also identifi es and discusses longer term trends. The long-term trend information provides a picture of how the market has developed and matured over time and demonstrates why the water market is one of the success stories of water reform in Australia. This report is not intended to be a comprehensive review of all aspects of Australia s water markets. The intention is to highlight trends and provide comment on the operation of particular aspects of the market. Furthermore, the report focuses on the Murray Darling Basin (MDB) and in particular the southern part of the basin, as that is where most trade occurs. The Commission welcomes comments and feedback on this report. 1.2 Overview of the water market This section provides a brief overview of the water market. More detail on the market framework and market activity can be found in the AWMR series. Water is managed by individual states and territories that issue water users with entitlements to access and use water. The entitlements are referred to using differing (jurisdiction-specific) terminology (see Section 1.4). Water allocation systems throughout the MDB generally define pools of water that are available for consumptive use and share the available resource among entitlement holders. Holders of water entitlements receive water allocations every season based on the amount of water in storages, expected inflows and other factors. The allocations are defined as a percentage of the nominal quantity of water entitlement available for consumptive use. Water entitlements exist in both regulated and unregulated systems. In regulated systems, flows are controlled through the use of infrastructure that stores and releases water, while flows in unregulated systems are not controlled through the use of infrastructure. Water entitlements to regulated sources have different levels of reliability, such that higher reliability entitlements receive their allocations before lower reliability entitlements. A holder of a water entitlement with an estimated reliability of 90% would expect to receive full allocations in 90 years out of 100. The levels of reliability of water entitlements vary by jurisdiction. Water entitlements in unregulated systems have no formal reliability. The ability to take water from an unregulated water source is generally specified by stipulating a number of restrictions on extraction (minimum flow conditions, maximum daily extraction and extraction timing). Entitlements can be either bundled or unbundled. Unbundling refers to the separation of bundled entitlements into their individual elements, including their separation from land title. Historically, most entitlements were bundled with land, and bundled use and access rights. However, most entitlements in significant surface water systems have now been unbundled from land. Additional degrees of unbundling are also possible, for example to include a share of channel capacity (a delivery share). 8 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

The most common model that has been adopted in regulated surface water systems involves: + a tradeable water access entitlement + a water use right, which is non-tradeable and site specific, and defines the terms and conditions under which water can be used on land. The unbundled entitlement system is illustrated in Figure 1.1. Figure 1.1: Simplified example of an unbundled entitlement system PRE-WATER REFORM NWI REFORMS Introduction Section 1 Water storage Water storage Water right Water access entitlement Water access entitlement a perpetual or ongoing entitlement to a share of water from a specified consumptive pool as defined in the relevant water plan. Unbundling Water allocation Delivery share Water use licence Water allocation the specific volume of water allocated to water access entitlements in a given season. Delivery share a share of capacity in an irrigation supply channel or a water course. Land Land Traditional water right a right to an annual volume of water, subject to available water in storage. Inseparable from land. Water use licence the rights and obligations relating to the use of water on a specific parcel of land. Generally, there are two types of water trade transactions (see Figure 1.2): + the transfer of an entitlement (the right to take and use water) from one legal entity to another + the transfer of water allocation (water allocated to an entitlement) from one authorised user to another. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 9

Figure 1.2: Simplified example of trading in an unbundled entitlement system Water access entitlement trade: Transfer of ownership of the right to a perpetual share of the consumptive pool. Water access entitlement Water access entitlement Water access entitlement W ater allocation Water allocation Seller $ Buyer Water allocation trade: Transfer of ownership of the right to a specified volume of water allocated to a water access entitlement. Water access entitlement Water access entitlement Water allocation Water allocation Seller $ Buyer Water entitlement trading is generally driven by changes in long-term demand and in the nature and location of water-using industries. Entitlements can be purchased as an investment or risk management tool, and entitlement trading may also reflect shifts between agricultural sectors, or participants exiting irrigated agriculture. Water allocation trading generally assists users to respond to seasonal conditions and other short-term events by reallocating water between users within a particular year. Water markets differ between jurisdictions due to the jurisdictions differing approaches to water planning and management and differing administrative and institutional arrangements. Each jurisdiction records and manages trade transactions on its own registry system. The broad processes for entitlement and allocation trading are outlined in figures 1.3 and 1.4, although specifi c arrangements may differ between jurisdictions. 10 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Figure 1.3: Entitlement trade Contract of sale + + Buyer and seller locate each other and agree to a price A contract is drawn up Introduction Lodgement of application + Regulatory approval is sought in cases where trade might impact on the water resource and the environment (otherwise it is generally not required) Section 1 Settlement + Buyer and seller sign transfer papers and exchange title documents Registration + Buyer lodges transfer documents with appropriate registry (transfer takes legal effect) Figure 1.4: Allocation trade Contract of sale + + Buyer and seller locate each other and agree to a price A contract is drawn up Lodgement of application + + Regulatory approval must be sought for allocation Upon approval, water accounts are adjusted for buyer and seller and the transaction is registered Settlement + Buyer and seller are advised in writing of determination + Consideration amount is exchanged from buyer to seller. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 11

The outcomes of any market, which are mainly assessed by reference to prices and quantities traded, depend on both supply and demand in that market. The factors influencing supply and demand in the water market are more numerous and complex than in many other markets: + Seasonal events and longer term climate trends affect supply and demand. For example, a dry period will increase demand for water and also restrict its supply. Furthermore, because seasonal weather patterns can vary across areas covered by the market, supply and demand can differ widely between different catchments. + Demand for water is partly a function of supply and demand for a wide range of agricultural commodities. + Water markets are governed by various physical and hydrological constraints, and delivery of the commodity requires transport via natural systems or large infrastructure. Where there is no interconnection between areas, supply and demand conditions can be very different, even in areas that are physically very close. + While water has been traded for some time, the water market it is not yet fully mature. Changes in governance and administration of the market, and the products that are traded in the market, are still occurring. + Efforts are underway to address historical overallocation of water resources in many areas, which may result in changes to the volume of water available for consumptive use and trade. + The water market is a composite of a number of different submarkets, some of which interact and some which are totally independent of other submarkets. The submarkets exist mainly due to physical constraints on trading, but can also occur because of policy decisions or for other reasons. + Differences exist between water markets across states. They include different trading rules, trading processes, attributes of the product being traded (particularly relating to entitlement reliability), fees and charges, and other matters. + Unlike in other markets (such as the Australian Stock Exchange), there is no single or dominant trading platform. + There has been recent and relatively high government participation in water markets compared to other markets (primarily to recover water for the environment). The Australian Government and the state governments are committed to implementing the National Water Initiative, which aims to improve the effectiveness of various aspects of water management, including water markets. Further reforms and improvements to administrative and institutional arrangements are likely to remedy some shortcomings in water markets, but the physical and hydrological constraints are likely to persist. For further information on factors affecting the efficient operation and further development of Australia s water markets, see NWC (2011). 1.3 Market segments The Australian water market consists of a number of separate markets of varying size, activity and connectivity with each other. The separate markets are generally defined by physical water system boundaries and interact with each other where there is hydrologic connectivity. Table 1.1 summarises the water market segments in Australia. Table 1.1: Market segments Major market segment Murray Darling Basin Outside the Murray Darling Basin Market segment Northern Murray Darling Basin Southern connected Murray Darling Basin Tasmania Northern Territory Western Australia South Australia outside the Murray Darling Basin Queensland outside the Murray Darling Basin New South Wales outside the Murray Darling Basin Victoria outside the Murray Darling Basin 12 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Murray Darling Basin Most water trading occurs in the MDB, particularly the southern connected MDB. Unlike most other catchments in Australia, the southern connected part of the basin is hydrologically linked, which allows for trade between catchments, and is a much larger and deeper market. Most of the southern MDB is regulated. It receives most of its rainfall in the winter months, while in the north about half of annual inflows occur during the summer. Consequently, the types of irrigated agriculture differ across the basin. Irrigation in the north is typically opportunistic and based on the prevailing rainfall patterns, while in the south, at least in the hotter and drier parts downstream of Mildura, irrigation (especially for perennial horticultural crops and viticulture) is based on more reliably supplied water released from upstream dams. Most of the analysis in this report focuses on the MDB, particularly the southern MDB, because: + most trading activity has occurred in that area (as a result of its large proportion of land under irrigated agricultural production and its well-developed water infrastructure) + there is significantly more data available on trading in the region. Introduction Section 1 Outside the Murray Darling Basin Catchments in areas outside the MDB are typically hydrogically isolated, and trade is limited to smaller geographical areas. As a result, markets are often thin and trading activity varies widely. The level of market maturity in the jurisdictions outside the MDB varies. For example, while trade is possible in the Northern Territory, no water trading has occurred there, largely because water resources have not yet been fully allocated. 1.4 Summary of market outcomes Figures 1.5, 1.6 and 1.7 show the volumes of allocation and entitlement trade for the southern MDB, northern MDB and areas outside the MDB, respectively. The volume of allocation and entitlement trade in the southern MDB has grown steadily since the introduction of water trading in the early 1980s. Initially there was limited trading because trading was not widely accepted by irrigators, there was limited demand for trade, and formal market mechanisms and information about the market did not exist in most areas. In key areas of the MDB there were also few limitations on additional extractions. However, as demonstrated in Figure 1.5, there was a significant increase in the volume of trade following the establishment of the interim cap on the volume of surface water extractions in the mid-1990s. Trade volumes have also increased in response to climate and water supply variability over the past 10 years and to the implementation of water market reforms driven by the National Water Initiative. Figure 1.5: Volume of allocation and entitlement trades in the southern MDB, 1983 84 to 2009 10 (ML) Volume (ML) 1 800 000 1 600 000 1 400 000 1 200 000 1 000 000 800 000 600 000 400 000 200 000 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 Interim cap announced June 1995 Southern MDB allocation trade National Water Initiative signed June 2004 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 S outhern MDB entitlement trade 2006-07 2007-08 2008-09 2009-10 Note: Includes only trades of regulated water from the Lower Darling, NSW Murray, Murrumbidgee, SA Murray, Victorian Murray, Goulburn and Campaspe Loddon systems. Sources: NWC (2010b), AWMR series; approximate values for years before 1997 98 from the Murray Darling Basin Commission. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 13

The volume of entitlement trade in the northern MDB has followed the same trend as in the southern MDB; however, the volume of allocation trade did not change over the period from 2007 08 to 2009 10. Entitlement and allocation trade are not possible between trading zones in the northern MDB. This is likely to have an impact on the volume of allocation trade, as localised climatic and production effects cannot be offset by importing water from other regions. The ability of these markets to respond to changes in water availability is limited. Figure 1.6: Volume of regulated allocation and entitlement trades in the northern MDB, 2007 08 to 2009 10 (ML) 700 000 600 000 500 000 ML 400 000 300 000 200 000 100 000 2007-08 2008-09 2009-10 Northern MDB allocation trade Northern MDB entitlement trade Note: Data for areas outside the southern MDB for the years before 2007 08 was not available for this report. Only regulated trades are presented, as groundwater allocation trades were not reported for NSW in 2007 08. Source: AWMR series. Outside the MDB, both allocation and entitlement trade remained steady from 2007 08 to 2009 10 (Figure 1.7). Figure 1.7: Volume of allocation and entitlement trades outside the MDB, 2007 08 to 2009 10 (ML) 250 200 150 ML 100 50 0 2007-08 2008-09 2009-10 Non-MDB allocation trade Non-MDB entitlement trade Note: Data for areas outside the southern MDB before 2007 08 was not available for this report. Source: AWMR series. 14 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

1.5 Data and terminology This is the first water markets analysis and commentary report produced by the Commission. The report builds on, and sources data from, the AWMR series from 2007 08 to 2009 10 and uses reporting conventions established by those reports. It also uses data from a number of different sources, particularly for years before 2007 08. However, directly comparable data is available only from the time of production of the first Australian water markets report in 2007 08. For example, data before that date does not include trades in unregulated rivers and groundwater; nor does it include trades within New South Wales irrigation corporations or South Australian irrigation trusts. A large amount of the information presented in the body of this report is shown in charts. The numerical values underlying tables and charts are in Appendix A. The Australian states and territories use differing terminology to describe statutory water rights and dealings. In some cases, different terms are used to refer to essentially the same market product or dealing (see Table 1.2). To avoid confusion, this report uses the generic terms entitlement and allocation : + entitlement an entitlement to exclusive access to a share of available water resources that exists by virtue of or under state law + allocation the volume of water allocated to water access entitlements in a given period (usually a water year, from 1 July to 30 June). Introduction Section 1 Table 1.2: National Water Initiative-equivalent entitlement terminology, 30 June 2010 Jurisdiction Water access entitlement Water allocation Queensland Water allocation Seasonal water assignment Victoria Water share Water allocation South Australia Water licence (bundled) and water access entitlement (unbundled) Water allocation a New South Wales Water access licence Water allocation Western Australia Water licence Water allocation a Northern Territory Water licence Water licence Australian Capital Territory Water access entitlement Water allocation Tasmania Water licence Water allocation Applicable only to Harvey Water. Note: This is not a complete list of entitlements on issue in each jurisdiction. 1.6 Report overview The remainder of this report is structured as follows: + Chapter 2 summarises the characteristics of the southern MDB + Chapter 3 discusses allocation trading in the southern MDB + Chapter 4 comments on entitlement trading in the southern MDB + Chapter 5 discusses trading outside the MDB. + Appendix A lists the numerical values underlying the tables and figures in body of the report. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 15

Section 2 Overview of the 2.1 Physical layout and trading zones 18 southern MDB 2.2 Climate, water supply and major storages 19 2.3 Location and composition of entitlements 20

The MDB is Australia s main water market, making up 93% of the volume traded across Australia in 2009 10. The MDB is considered to comprise two parts: the southern MDB and the northern MDB. That distinction in part reflects the variability of connectivity between the northern and southern systems. The southern MDB includes a number of distinct but connected water systems that cross state boundaries. It accounts for most of the water used and traded, and most of the irrigated agricultural activity, in the entire basin. Therefore, it is the main focus of this report. 2.1 Physical layout and trading zones The southern MDB comprises the northern river systems of Victoria, the southern river systems of New South Wales, and the River Murray in South Australia (see Figure 2.1). The boundary with the northern MDB is the Lower Darling regulated river zone, which feeds directly into the Menindee Lakes in New South Wales. Trading zone boundaries are usually defined according to water system or water source boundaries. Figure 2.1: Trading zones in the southern MDB South Australia New South Wales L ower Darling Lachlan SA Murr ay NSW Murray below Barmah Murrumbidgee VIC Murray below Barmah NSW Murray above Barmah VIC Murray above Barmah Victoria Loddon Campaspe Gr eater Goulburn L ower Goulburn 18 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

This report uses the boundaries of eight zones defined in The impacts of water trading in the southern Murray Darling Basin (NWC 2010b), which aggregates smaller trading zones defined under Victoria s water resource plans (the Loddon and Campaspe systems). The zones are: 1. Lower Darling 2. Murrumbidgee 3. NSW Murray (including above and below Barmah) 4. SA Murray 5. Vic Goulburn (including Greater and Lower Goulburn) 6. Vic Loddon and Campaspe 7. Vic Murray above Barmah (including the Lower Broken Creek) 8. Vic Murray below Barmah. 2.2 Climate, water supply and major storages Climate is arguably the biggest determinant of supply and demand for water. The key influence is rainfall, but other factors (such as temperature and evaporation levels) also affect the supply of and demand for water. Storage levels (including in dams, reservoirs and groundwater aquifers) are a key determinant of the water available for consumptive uses and a major determinant of allocation levels. However, even if there is little water available in storages and river systems, good rainfall (in terms of both spatial and temporal distribution) in agricultural areas can sharply reduce demand for water from storage and supply systems. Figure 2.2 shows the generally declining level of major storages supplying the MDB between 1989 90 and 2009 10. On average, storages were more than 90% full at the end of 1992 93 but fell until 2006 07, when they were just 15% full. This was because of a period of sustained lower than average rainfall from 2000 01 to 2008 09. Rainfall improved slightly in 2006 07, but storage levels remained very low. In 2009 10 the MDB experienced the best rainfall for many years, well above the long-term average. Storage levels began recovering as a result, and in 2010 11 are likely to be at their highest for a number of years. Overview of the southern MDB Section 2 Figure 2.2: Rainfall in the MDB and storage levels of major dams in the southern MDB, 1989 90 to 2009 10 Rainfall (mm) 900 800 700 600 500 400 300 200 100 0 1989/90 1991/92 1993/94 1995/96 1997/98 1999/00 2001/02 2003/04 2005/06 2007/08 2009/10 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Percentage of storage capacity Total storages % Annual rainfall Average annual rainfall Note: Major dams are Dartmouth, Eildon, Hume, Blowering and Lake Victoria. Long-term average rainfall is based on rainfall measurements in the MDB between 1961 and 1990, and annual rainfall is an average figure for all of the MDB. Sources: Bureau of Meteorology (for rainfall data for the MDB) and Murray Darling Basin Authority (for storage data). National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 19

2.3 Location and composition of entitlements 2.3.1 Entitlements on issue Table 2.1 summarises the entitlements on issue in 2009 10 in the southern MDB. The largest volume was in the NSW Murray and the Murrumbidgee, but a proportion was in unregulated systems. Table 2.1: Entitlements on issue, 2009 10 (ML) Trading zone Entitlements on issue Lower Darling 529 469 Murrumbidgee 3 261 169 NSW Murray (including above and below Barmah) 2 536 380 SA Murray 826 053 Vic Goulburn (including Greater and Lower Goulburn) 1 801 543 Vic Loddon and Campaspe 280 886 Vic Murray above Barmah (including the Lower Broken Creek) 545 357 Vic Murray below Barmah 1 223 266 Total entitlements on issue in the southern MDB 11 004 123 Proportion of total entitlements on issue in Australia 47.8% Note: Entitlement volumes include regulated and unregulated surface water and groundwater. Source: AWMR series. 2.3.2 Composition of entitlements Regulated entitlements are split between higher reliability entitlements and lower reliability entitlements. In New South Wales, lower reliability entitlements are referred to as general security water access licences; in Victoria, they are referred to as low-reliability water shares. General security and low-reliability entitlements only receive allocations once there is enough water to meet high-reliability entitlements in the current year and, with minimum inflows, the following year. High-reliability entitlements in Victoria are expected to reach 100% of allocations in from 89 to 98 years out of 100, depending on the zone (Office of Water 2009). Similarly, in New South Wales water sharing plans for the NSW Murray and the Murrumbidgee indicate that reliability for high-security shares is 97% and 95%, respectively (Ribbons 2009). While the reliability of lower reliability entitlements varies by location, Victorian low-reliability water shares tend to be less reliable than New South Wales general security entitlements (Office of Water 2009, Ribbons 2009). Almost half of the entitlements (by volume) in the southern MDB are held in two general security products in New South Wales. There is only one class of regulated entitlement in South Australia (referred to as high-security water entitlements). Figure 2.3 shows the composition of the total regulated entitlement pool in the southern MDB, by reliability class. 20 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Figure 2.3: Percentage of total entitlements on issue (low-, general and high-reliability/security entitlements, southern MDB, by volume Goulburn High12.6% Goulburn Low 5.5% Overview of the southern MDB Murrumbidgee General 23.4% Murrumbidgee High 4.7% Loddon and Campaspe High 0.7% Loddon and Campaspe Low 0.3% Vic Murray above Barmah High 3.9% Section 2 Vic Murray above Barmah Low 1.7% Vic Murray below Barmah High 10.8% Vic Murray below Barmah Low 2.1% NSW Murray and Lower Darling General 21.7% SA Murray High10.2% NSW Murray and Lower Darling High 2.5% Source: AWMR series. 2.3.3 Irrigated agricultural activities in the southern MDB Table 2.2 summarises the key irrigated agricultural industries operating in southern MDB trading zones. Table 2.2: Key irrigated agricultural industries, southern MDB Region Horticulture Rice Dairy Mixed farming Lower Darling 9 NSW Murray 9 9 9 Murrumbidgee 9 9 SA Murray 9 9 Vic Goulburn 9 9 9 Vic Murray 9 9 Source: NWC (2010b). National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 21

Horticulture The highest concentration of horticulture is in the Victorian Murray below Barmah, Lower Darling, Murrumbidgee and SA Murray trading zones. Horticultural demand for water can be inelastic in the short term, as there is a high cost in losing established plantings. This means that allocation water is often purchased and imported during times of low local water allocations to ensure the survival of permanent plantings. Rice The NSW Murray and Murrumbidgee zones have a high concentration of irrigated annual cropping, which includes rice growing. Demand for water for rice growing is relatively elastic, in that it changes significantly from year to year depending on water availability and prices (for both water and crops). Because rice is an annual crop, rice growers can sell water allocations and reduce the area under production in relatively dry years. During a water season, they can respond to low water allocations by delaying their plantings until they get a more accurate indication of available water. They can also source additional water through the allocation market to support planting decisions, or they can sell their water allocation if planting does not proceed (providing a return on their water entitlement). Dairy Dairying is highly concentrated in the Goulburn, Victorian Murray above Barmah and NSW Murray zones. Similarly to rice farmers, dairy farmers can respond to dry years in various ways, including by buying allocations to grow feed or selling allocations to assist in purchasing feed substitutes (allowing farmers to maintain their herds for the next season). Mixed farming Mixed farming varies across the southern MDB trading zones, but is most common in the Victorian Loddon Campaspe and Murray above Barmah zones. Water demand is highly elastic, as it is possible to substitute irrigated and dryland production depending on water availability and prices. 22 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Section 1 Introduction Section 3 Allocation trade in 3.1 Allocation levels 24 the southern MDB 3.2 Allocation trade 26 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 23

3.1 Allocation levels Each season, entitlement holders in regulated systems are allocated a proportion of the available consumptive pool. The allocation is based on the reliability of the entitlement, the amount of water in storages and the expected climatic and system conditions. Allocation levels determine the amount of water that may be consumed during a season. Allocations usually increase cumulatively throughout the season. Allocation announcements in the MDB are typically made on the first and fifteenth days of each month. Figure 3.1 shows end-of-season allocations to the major tradeable water entitlement products in the southern MDB. It shows four stages of allocation levels over the past 12 years. From 1998 99 to 2001 02 (the early stages of drought), end-of-season allocations were consistently high and often at or above 100%. From 2002 03 to 2005 06, there was a clear trend of declining allocations to low-reliability (and general security) entitlements because rainfall was below average, before very low levels were reached in 2006 07 and 2007 08. In those years, allocations for high-reliability (and high-security) entitlements also declined dramatically. In 2008 09 and 2009 10, a recovery in allocations was evident. The significant variation in end-of-season allocations between the trading zones reflects the spatial variation in water availability. This factor, in concert with the variations in elasticities of demand and the value of agricultural production, is a key driver of allocation trade in the southern MDB. For example, in 2008 09 irrigators in the SA Murray received an average allocation level of 18%, whereas irrigators in New South Wales received much higher average allocations (33% in the Murrumbidgee and 60% in the Lower Darling). 1 As a result, there was significant allocation trade out of New South Wales into South Australia in that year (see Figure 3.10). 1 Allocation levels are the average annual allocations received by a trading zone in the southern MDB for regulated entitlements. Aggregation includes only tradeable regulated entitlements. Allocation levels are calculated as (volume allocated to regulated entitlements) (volume of regulated entitlements on issue). See Appendix A for end-of-season allocation levels by reliability of entitlement. 24 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Figure 3.1: End-of-season allocations to high- and low-security entitlements, southern MDB, 1998 99 to 2009 10 Early drought Declining storages Very low Recovery 100 80 60 40 % of allocation at end of season 20 0 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Vic Goulburn - high SA Murray - high Vic Murray - high Vic Murray - sales water NSW Murray - high NSW Murray - general NSW Murrumbidgee - high NSW Murrumbidgee - general Note: Victorian low-reliability water shares were created on 1 July 2007. Before that time sales water existed. No low-reliability allocations were made between 2007-08 and 2009-10. Sources: NWC (2010b), AWMR series. Section 3 Allocation trade in the southern MDB National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 25

3.2 Allocation trade 3.2.1 Volume of allocation trade Figure 3.2 shows that the volume of allocation trade in the MDB has continued to grow over time, reaching1652 GL in the southern MDB (2301 GL across the entire MDB) in 2009 10. A key turning point for the market occurred in 1995 with the establishment of a cap on total extraction in the MDB. The cap, which limits the volume of water available for consumptive use, meant that new demand could only be satisfied through trading. Allocation trade generally grew consistently until 2002 03, when allocations for lower reliability entitlements 2 fell substantially in both Victoria and New South Wales. It was also the first year since the introduction of water trading in which not all key high-security products received 100% allocations. The volume of allocation trades then generally declined over the next four years as allocations (and hence the volume of water available) fell, reaching a low in 2006 07 that coincided with the lowest storage levels. Trade then increased in 2007 08 and again in 2008 09 and 2009 10. Increases in 2008 09 and 2009 10 were possibly due to increased water availability in those years. The reason for the apparent rebound in 2007 08 is not entirely clear: allocations remained low in that year. It is possible that the increase was related to the extremely high prices for water allocations during the first quarter of the year stimulating additional supply (see Figure 3.15). Data limitations may also be a factor: data for the years before 2007 08 does not include trades in unregulated rivers and groundwater or trades within New South Wales irrigation corporations or South Australian irrigation trusts. Figure 3.2: Volume of allocation trade, southern MDB, 1983 84 to 2009 10 (ML) 1 800 000 Volume of trade (ML) 1 600 000 1 400 000 1 200 000 1 000 000 800 000 600 000 400 000 200 000 Interim cap announced June 1995 National Water Initiative signed June 2004 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Note: Includes only trades of regulated water from the Lower Darling, NSW Murray, Murrumbidgee, South Australian Murray, Victorian Murray, Goulburn and Campaspe Loddon systems. Sources: NWC (2010b), AWMR series; approximate values from the Murray Darling Basin Commission for the years before 1997 98. 2 Low-reliability water shares in Victoria were created on 1 July 2007. Before that time, this water was referred to as sales water and was not separated from higher reliability water. 26 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Figure 3.3 shows that there has historically been a broadly inverse relationship between water allocation levels and the proportion of water allocations traded. As the volume of water allocated fell from 1998 99 to 2006 07, the percentage of the total allocation that was traded tripled, going from approximately 5% to 15%. Figure 3.3: Water allocation levels and proportion traded, southern MDB, 1998 99 to 2009 10 Announced allocation volumes (ML) 12 000 000 10 000 000 8 000 000 6 000 000 4 000 000 2 000 000 0 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Allocations traded as % of announced allocations 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Announced allocation volumes (ML) 45 40 35 30 25 20 15 10 5 0 % of announced allocation traded Allocation trade in the southern MDB Section 3 Sources: NWC (2010b), AWMR series. 3.2.2 Number of allocation trades It was not possible to obtain data on the number of allocation trades before 2007 08 for this report. However, Figure 3.4 shows that both the number and the average size of allocation trades have increased since 2007 08. It also shows that the numbers of trades originating from the NSW Murray, Murrumbidgee and Victorian Murray below Barmah zones are typically much larger than for other zones. Figure 3.4: Number and average size of allocation trades, southern MDB, 2007 08 to 2009 10 Number of allocation trades 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 2007-08 2008-09 2009-10 120 100 80 60 40 20 0 Average size of allocation trades (ML) Lower Darling Murrumbidgee Vic Goulburn NSW Murray Vic Murray above Barmah Average size (volume) of allocation trades SA Murray Vic Loddon and Campaspe Vic Murray below Barmah Note: To avoid double counting, the numbers of trades and volumes used to calculate the average size of trades are based on internal trades plus trades out of each water system. Source: AWMR series. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 27

3.2.3 Prices for allocation trades As noted in Box 3.1, there is a strong and inverse relationship between the availability of water (as defined by allocation levels) and prices for allocation trades. This is clearly evident in prices for allocation trades in 2009 10 compared to previous years, as shown in Figure 3.5. In 2009 10, the average price of water allocation trades was $150/ML, compared to $630/ML in 2007 08. Figure 3.5: Average water allocation and average allocation trade price, southern MDB, 2007 08 to 2009 10 Average allocation trade price ($/ML) $1200 $1000 $800 $600 $400 $200 $0 Jul Aug Sept Oct Nov Dec Jan Mar Apr May 70% 60% 50% 40% 30% 20% 10% 0% -10% Average % allocation in the southern MDB Month Average price (2007-08) Average price (2009-10) Average price (2008-09) Average allocation (2007-08) Average allocation (2008-09) Average allocation (2009-10) Note: Allocation levels are the total announced allocations by week for the trading zones in the southern MDB for regulated entitlements. Aggregation includes only tradeable regulated entitlements. Allocation levels are calculated as (volume allocated to regulated entitlements each week (cumulative total)) (volume of regulated entitlements on issue). Source: AWMR series. Observations Typically, water allocation trade prices in the MDB are unstable at the beginning of each water year before becoming more stable. This is likely to be a function of uncertainty in the market about the available allocation for the year and the low numbers and volumes of trade that tend to occur in July and August of each water year, as shown in Figure 3.6. Figure 3.6: Volume and number of allocation trades in the southern MDB, 2007 08 to 2009 10 Volume of trade (ML) 400 000 350 000 300 000 250 000 200 000 150 000 100 000 50 000 3500 3000 2500 2000 1500 1000 500 Number of trades 0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 2007-08 2008-09 2009-10 Volume of trade Number of trades Source: AWMR series. 28 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

2007 08 Prices in early 2007 08 were at the highest levels ever recorded in the water market. While prices are a result of prevailing market conditions, the peak could possibly be attributed to declining allocation levels over the period from 2002 03 to 2006 07 (see Figure 3.1) and specifically to the very low allocations received in 2006 07. This may have driven concerns that low rainfall would persist in 2007 08 and that there would be no further increases to allocations during the year. However, there was a marked fall in allocation prices after November 2007. This occurred while allocation levels increased in most areas. Prices generally declined after November and reached a low at the start of February 2008, at which point state water ministers announced that carryover would be possible from 2007 08 into 2008 09. This meant that 2007 08 allocations now had greater value and prices then increased, doubling by the end of the year. Box 3.1: Allocation levels and trade The relationship between allocation levels and the volume and price of allocation trade is complex, as both supply and demand are affected by the availability of water. In years when there are above-average rainfall and significant volumes in storage, demand for additional water by irrigators will fall at any given price. Therefore, the price and quantity of allocations traded will fall. However, above-average rainfall and higher volumes in storage will also result in greater allocations, increasing supply. Price Impact of reduced demand on price and volume of water allocations traded Price Impact of increased supply on price and volume of water allocations traded Shrinking demand Supply Demand Growing supply Allocation trade in the southern MDB Section 3 P 1 P 2 P 1 P 2 Q 2 Q 1 Quantity Q 1 Q 2 Quantity The impact on prices is unambiguous, as lower demand and greater supply will cause prices to fall. However, the impact on the quantity traded is not so clear and depends on whether the magnitude of the demand fall exceeds the magnitude of the supply increase. The reverse occurs when water availability is reduced. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 29

2008 09 Following the initial instability at the start of 2008 09, prices fell rapidly in September and October. Some observers have attributed this reduction to a realisation among irrigators that prices were not going to reach the same levels as in 2007 08. Prices then fell to their lowest level for the year in January 2009, which coincided with increases in allocations in most districts. 2009 10 2009 10 was characterised by substantially lower prices in the southern MDB. This was a function of the larger volume of allocations available compared to previous years (see Figure 3.1) and improved rainfall in irrigation areas (see Figure 2.2). Prices peaked very early in the year at $590/ML and dropped to between $70/ML and $90/ML by the end of the year, at which time they were less than one-quarter of prices at the end of the previous two years. The reduced prices were a response to the significant improvement in the availability of water. The volume of trade at the end of 2009 10 was very high, which, combined with the low prices, suggests there were many willing sellers in the market at that time. This may reflect increases in allocations from 78% to 100% in April 2010 in the Victorian Murray zones. 3.2.4 Movement of water Net interstate movement of water from 1998 99 to 2009 10 Figure 3.7 shows that relatively minor allocation volumes were traded interstate from 1998 99 through to 2005 06; however, much greater interstate trade occurred from 2007 08 to 2009 10, in particular from New South Wales into South Australia and Victoria. South Australia was a net importer of water from 2007 08 to 2009 10, and Victoria imported relatively large volumes in 2008 09. New South Wales has been a net exporter since 2006 07; the most substantial volume was exported in 2008 09. The drivers of this trading activity are explored in Section 3.2.5. Figure 3.7: Net interstate allocation trade, southern MDB, 1998 99 to 2009 10 (ML) 400 000 300 000 200 000 100 000 Inward allocation trade (ML) -100 000-200 000-300 000-400 000-500 000-600 000 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 NSW South Australia Victoria Sources: NWC (2010b), AWMR series. 30 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Net interzone movement of water from 2007 08 to 2009 10 The reasons for the movement of water between trading zones include: + variations in water availability between trading zones + the price of water + the capacity of irrigators to adjust farming practices in the short term to respond to water availability + expected water availability for a given season. Figure 3.8 shows allocation trading activity between trading zones in the southern MDB between 1998 99 and 2009 10. Trading increased significantly between 2007 08 and 2009 10. The increase is likely to be attributable in part to both decreased allocations across the MDB and the difference in allocation levels between zones (see Figure 3.1). Spatial variation in water availability drives demand for trade between connected zones, as water users import or export water depending on their local conditions and water needs. Additionally, increases in trade between zones may have been influenced by administrative and institutional reforms to the water market that have enabled more streamlined trade between zones, both within and between states. Figure 3.8: Net allocation trade between trading zones, southern MDB, 1998 99 to 2009 10 (ML) 400 000 Allocation trade in the southern MDB Section 3 300 000 200 000 100 000 Net trade (ML) 0-100 000-200 000-300 000-400 000-500 000 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Lower Darling NSW Murray Murrumbidgee SA Murray Vic Goulburn Vic Loddon and Campaspe Vic Murray above Barmah Vic Murray below Barmah Sources: NWC (2010b), AWMR series. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 31

Figures 3.9, 3.10 and 3.11 show the largest sources of water allocation trade and the largest destinations for water allocation trades for each trading zone from 2007 08 to 2009 10. The figures demonstrate that there was a consistent movement of water into the SA Murray from the NSW Murrumbidgee, NSW Murray and Lower Darling zones from 2008 09 onwards (trade into or out of the Lower Darling was not possible in 2007 08). Figure 3.9: Significant interzone water allocation trading, southern MDB, 2007 08 South Australia SA Murray 145 GL 32% $570/ML 2 GL 38 GL 62 GL 19 GL -18 GL VIC Murray Lower Darling 0 GL 60% $84/ML NSW Murray 5% $594/ML 34 GL 2 GL New South Wales Murrumbidgee -139 GL 24% $524/ML 96 GL 34% $670/ML 29 GL Victoria 69 GL 11 GL Goulburn -85 GL 39% $735/ML Key Water system Net trade Allocation percentage Average price Net exporter Net importer Notes: 1 Zones are stylised representations of aggregated water trading zones. They are not to scale. 2 Arrows are only shown for the largest import and largest export for each zone. They do not include all imports and exports. 3 Allocation levels are the average annual allocation received by a trading zone in the southern MDB for regulated entitlements. Aggregation includes only tradeable regulated entitlements. Allocation levels are calculated as (volume allocated to regulated entitlements) (volume of regulated entitlements on issue). See Appendix A for end-of-season allocation levels by reliability of entitlement. Source: AWMR series In 2007 08, all trade zones except the Lower Darling received less than 50% of full allocations. In response to the low levels of allocation, the SA Murray and Victorian Murray trading zones were net importers of water, while the Murrumbidgee was the most significant net exporter. 2007 08 was the only year of the three in which Goulburn became a net exporter of water. The limited availability and high price of water in 2007 08 meant that it was likely to have been more profitable for rice producers in the NSW Murray and the Murrumbidgee to sell their water allocations than to plant rice. Similarly, some dairy farmers in the Goulburn zone, one of the highest density dairy farming areas in Australia, are likely to have chosen to sell some of their allocations and purchase fodder or grain for their cattle in response to the very high price of water. These drivers are discussed in more detail in Section 3.2.5. Trade was not possible into or out of the Lower Darling in 2007 08 due to system capacity constraints. As a consequence, prices in that zone were low in that year, but increased significantly following the relaxation of water trading rules to allow water trade into and out of the zone in 2008 09. Between 2007 08 and 2008 09, the average price of water in the Lower Darling increased from $84/ML to $480/ML. 32 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Figure 3.10: Significant interzone water allocation trade, southern MDB, 2008 09 South Australia SA Murray 336 GL 18% $340/ML 3 GL 103 GL 199 GL 15 GL 3 GL Lower Darling -28 GL 60% $480/ML NSW Murray -135 GL 18% $384/ML VIC Murray 172 GL 27% $337/ML 106 GL 40 GL 15 GL 22 GL New South Wales Murrumbidgee -390 GL 33% $361/ML 57 GL Allocation trade in the southern MDB Section 3 Victoria Goulburn 42 GL 22% $337/ML Key Water system Net trade Allocation percentage Average price Net exporter Net importer Notes: 1 Zones are stylised representations of aggregated water trading zones. They are not to scale. 2 Arrows are only shown for the largest import and largest export for each zone. They do not include all imports and exports. 3 Allocation levels are the average annual allocation received by a trading zone in the southern MDB for regulated entitlements. Aggregation includes only tradeable regulated entitlements. Allocation levels are calculated as (volume allocated to regulated entitlements) (volume of regulated entitlements on issue). See Appendix A for end-of-season allocation levels by reliability of entitlement. Source: AWMR series. In 2008 09, allocation levels were lower than in the previous year in Victoria and South Australia and higher in New South Wales. Hence Goulburn became a net importer of water in 2008 09 and the Murrumbidgee continued to export very significant quantities of water, particularly to the SA Murray. The quantity of imports into South Australia demonstrates the inelasticity of water demand from agricultural producers in that region. In 2008 09, the average price per megalitre of water in the southern MDB almost halved in comparison with the previous year, while the volume of interzone trade increased. It appears that the lower prices were a result of the higher overall level of water availability, while the increased volume of interzone trade was a response to the uneven distribution of water allocations across the southern MDB. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 33

Figure 3.11: Significant interzone water allocation trade, southern MDB, 2009 10 South Australia SA Murray 253 GL 62% $145/ML 15 GL 106 GL 59 GL 6 GL Lower Darling -68 GL 40% $144/ML NSW Murray -88 GL 34% $145/ML 96 GL New South Wales Murrumbidgee -111 GL 38% $144/ML VIC Murray -34 GL 80% $145/ML 30 GL 40 GL 49 GL 79 GL Victoria Goulburn 49 GL 49% $168/ML Key Water system Net trade Allocation percentage Average price Net exporter Net importer 1 Zones are stylised representations of aggregated water trading zones. They are not to scale. 2 Arrows are only shown for the largest import and largest export for each zone. They do not include all imports and exports. 3 Allocation levels are the average annual allocation received by a trading zone in the southern MDB for regulated entitlements. Aggregation includes only tradeable regulated entitlements. Allocation levels are calculated as (volume allocated to regulated entitlements) (volume of regulated entitlements on issue). See Appendix A for end-of-season allocation levels by reliability of entitlement. Source: AWMR series. In 2009 10, the New South Wales Government limited the volume of trade out of the Murrumbidgee through the use of an embargo, which is described in more detail in Section 3.2.5. The impact of the embargo appears to have been a significant reduction in the volume of water traded out of the Murrumbidgee in 2009 10: while 390 GL was traded out in 2008 09, only 111 GL was traded out in 2009 10 (see figures 3.10 and 3.11). It meant that the SA Murray had to import allocations from other sources notably the Lower Darling, where exports to the SA Murray rose from 15 GL in 2008 09 to 59 GL in 2009 10. Before 2008 09, no trade into or out of the Lower Darling was allowed. 3.2.5 Water allocation market drivers Three major types of agricultural production in the southern MDB dictate when and where water moves: rice cropping, horticulture and dairy. This section discusses the interactions of the three sectors with the water market. 34 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Rice Rice production is highly water intensive and, in Australia, is very sensitive to water availability and the price of water. Rice farmers are better off selling their water allocations and not planting when water prices reach a particular point. Rice has a gross margin of approximately $100 200/ML, which means that once the price of water exceeds that amount rice growing can become unprofitable and rice growers may make a higher return from selling water allocations. Most rice production occurs in the NSW Murray and Murrumbidgee zones. As shown in Figure 3.12, the price of allocation water in the Murrumbidgee was more than $500/ML in 2007 08 and remained high in 2008 09 ($380/ML). Correspondingly, the level of rice production was very low, and a large volume of water was traded out of the Murrumbidgee in 2007 08 and 2008 09 and out of the NSW Murray in 2008 09. In 2009 10, when allocation prices fell to $155/ML, rice production picked up and outward trade fell substantially. Figure 3.12: Rice production, rice prices and water allocation prices, Murrumbidgee, 2005 06 to 2009 10 Allocation trade in the southern MDB 1200 700 Production (kilotonnes) 1000 800 600 400 600 500 400 300 200 Price ($) Section 3 200 100 2005-06 2006-07 2007-08 2008-09 2009-10 0 Rice (kilotonnes) Rice ($/tonne) Water allocation price in Murrumbidgee ($/ML) Sources: Rice data, ABARE (2010); 2007 08 to 2009 10 water price data, NWC (2010a); 2006 07 allocation price data, Waterfind (2009:12); 2005 06 allocation price data, Sunraysia Water Exchange website (www.waterexchange.com.au/hosted/sunraysia/). Horticulture Horticulture s demand for water is relatively inelastic, as there is a high cost in losing established plantings: permanent plantings take time to establish and reach a high level of productivity. The SA Murray has a high concentration of horticulture, meaning that demand for water stays relatively constant even in years when water is scarce and allocation prices are higher. As Figure 3.13 shows, grape production did not change substantially over recent years, despite fluctuating water and commodity prices. Rather, the volume of water imported to the zone rose and fell to reflect the different allocation levels. The requirement for water by horticultural producers resulted in water being traded into the SA Murray. A substantial proportion of the water volume purchased came from the NSW Murray and the Murrumbidgee, where rice growing had been suspended. For example, in 2008 09, when allocations in the SA Murray were at their lowest for three years (18%), the largest volume of water was imported into that zone (336 GL). Most of that water came from the Murrumbidgee and NSW Murray, where very little rice was being grown even though allocations had increased. In 2009 10, however, allocations in the SA Murray were higher (62%) and the volume of water imported decreased (to 253 GL). Correspondingly, the level of rice production increased. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 35

Figure 3.13: Wine grape production and prices, and water allocation prices, SA Murray 2005 06 to 2009 10 Production (kilotonnes) 2000 1800 1600 1400 1200 1000 800 600 400 200 2005-06 2006-07 2007-08 2008-09 2009-10 $1000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 Price ($) Wine grapes production (kilotonnes) Wine grapes average price ($/tonne) Water allocation price in SA Murray ($/ML) Note: 2005 06 water allocation price data for the SA Murray was not available for this report. Therefore, that figure has been based on the average cost of water in the Murray Irrigation Area in 2005 06 (see www.murrayirrigation.com.au). Sources: Rice data, ABARE (2010); 2007 08 to 2009 10 water price data, NWC (2010a); allocation price data, Waterfind (2009:12). Dairy There is a high concentration of dairying in the northern Victorian regions, particularly the Goulburn zone. Irrigated dairy farming is sensitive to water prices: case studies developed by the Australian Bureau of Agricultural and Resource Economics found that, when water prices are lower than $300/ML, dairy farmers purchase additional water to supplement allocations to entitlements they own and use it to irrigate pasture. However, at higher prices dairy farmers may choose not to buy allocations, instead selling some of the allocation they receive from their entitlements and increasing fodder purchases. Dairy farmers also have the option of reducing the amount of feed for their cattle and reducing the amount of milk produced. As water prices decreased to around or below $300/ML in 2008 09, the Goulburn zone switched from being a net exporter of water to being a net importer. In 2007 08, the average water allocation price was $735/ML in the zone, and it was a net exporter of water allocation (85 GL). In the following year, the average water allocation price was $337/ML and the zone was a net importer of water allocation (42 GL). As shown in Figure 3.14, the price of hay and the price of water peaked during 2007 08. Figure 3.14 also shows that annual milk production generally followed a declining trend over the five years to 2009 10. Figure 3.14: Milk production, hay prices and water allocation prices, Goulburn, 2005 06 to 2009 10 Production (ML) 10 200 10 000 9 800 9 600 9 400 9 200 9 000 8 800 8 600 8 400 8 200 2005-06 2006-07 2007-08 2008-09 2009-10 $800 $700 $600 $500 $400 $300 $200 $100 $0 Price ($) Milk (ML) Hay ($/tonne) Water allocation price in Goulburn ($/ML) Sources: Milk and hay data, ABARE (2010); 2007 08 to 2009 10 water price data, NWC (2010a); 2006 07 water data, Waterfind (2009:12); 2005 06 allocation price data, Sunraysia Water Exchange website (www.waterexchange.com.au/hosted/sunraysia/). 36 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

3.2.6 Other market influences The Murrumbidgee embargo and trade Due to the relatively recent development of Australia s water markets, and various policy and management issues unique to the water market, governments intervene from time to time to address specific issues, or to pursue particular policies. In 2009 10, the New South Wales Government announced a temporary embargo on water allocation trade from the Murrumbidgee Valley into the Murray Valley. At the end of 2008 09, 230 000 ML of water had been carried over and was required to be delivered through the Murray Valley in 2009 10. The New South Wales Government considered that any additional trades could not be delivered without incurring unacceptably high transmission losses. Trading downstream from the annual cropping areas (including rice-growing areas) in the Murrumbidgee to permanent plantings in the Murray Valley had been an annual phenomenon up to that point. The embargo on trade was announced on 1 July 2009. However, it was eased slightly on 21 August 2009 as 200 000 ML of water that would otherwise have been released by Snowy Hydro into the Murrumbidgee was released into the River Murray instead. This freed up channel capacity in the Murrumbidgee and allowed for an extra 70 000 ML to be traded out. However, this was still well below the demand for allocation trade, and a ballot system in which users could trade up to 15% of their entitlement was used. Carryover Carryover is an arrangement whereby entitlement holders are able to carry over unused allocations from one water year to the next. Limits are usually applied to allocation accounts in carryover systems. They may limit the volume that may be carried over, the maximum volume of carryover plus new season allocation that may be held in an allocation account, or both. In the absence of carryover arrangements, allocations usually expire at the end of a water year. The introduction of carryover has a number of benefits. The key advantage is that it gives irrigators greater flexibility in managing their risk and water use over time. Carryover has been available in some systems since the 1990 s. However, 2007 08 was the first year in which carryover provisions were available in all three southern MDB states. In 2007-08, holders of some classes of entitlements in South Australia, Victoria, and New South Wales were able to carry over unused water into the 2008-09 season. All other things being equal, the impact of more comprehensive carryover rules on the water market would be expected to lead to: + a reduction in the automatic decline in allocation prices towards the end of the water year + less intra-year volatility in prices for allocation trades, particularly following individual allocation announcements, as allocations have a slightly more long-term nature. In relation to the first matter, it has been reported that in 2005 06 and 2006 07 the price of water allocations declined by 35% and 41%, respectively, between March and June (Waterfind 2008). However, that trend was reversed with the announcement of widespread carryover in 2007 08, and the value of allocations actually increased towards the end of the year in 2007 08 and 2008 09. In 2009 10 the value of allocations fell, but that was consistent with the longer term trend across the year and the generally improved availability of water, particularly following rainfall in early 2010. While detailed data has not been collected on water allocation prices for 2005 06 and 2006 07, high-level analysis of data published by Water Exchange suggests a slight reduction in the level of intra-year volatility of allocation prices, particularly towards the end of the year, although early-year volatility was still apparent in both 2008 09 and 2009 10. ade in the southern MDB Allocation tr Section 3 Market-sensitive announcements As in most markets, prices and volumes traded in the water market change in response to market-sensitive announcements. Two examples, both of which occurred in 2007 08, illustrate the market response to sensitive information. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 37

Allocation announcements Irrigators on the River Murray in South Australia started the 2007 08 water year with 4% allocations. By mid-august 2007, allocations had increased to 13%; however, inflows to the River Murray in August were less than half of average August inflows. In September 2007, it was announced that allocations would be increased to 16% from 1 October 2007. At that point, it appears that there was a strong expectation that allocations would not be increased again during the water year. On 30 October 2007, the Minister for the River Murray issued a press release that stated that further increases to allocations during summer are unlikely because of continued extreme drought conditions across the catchment (South Australian Government 2007). The following day the South Australian Minister for Water Security announced that domestic water restrictions would continue through November 2007. Prices for temporary water trades on the Murray River grew from an average of $580/ML at the start of the 2007 08 water year to more than $1000/ML in October and early November 2007. Similarly, the volume of water traded into South Australia reached a peak in the second week of November 2007. However, on 15 November 2007 water allocations for the Murray River in South Australia were increased to 22%. This caused a sharp reduction in prices, which had begun falling shortly before the announcement, indicating that some sections of the market were anticipating an increase. Figure 3.15 shows the impact of the expected low allocations in the SA Murray in 2007 08 and the market response after the announcement of further allocations for South Australian water users. Figure 3.15: Water allocation trading in South Australia in 2007 08 Volume of trade (ML) 14 000 12 000 10 000 8 000 6 000 4 000 13% allocation announced allocation announced for October 16% allocation announced 22% 32% allocation announced Carryover announced $1400 $1200 $1000 $800 $600 $400 Price ($/ML) 2 000 $200 $0 Jul 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Apr 2008 May 2008 Jun 2008 Volume of trade (ML) Price ($/ML) Source: AWMR series. Carryover announcements The announcement that irrigators could carry over allocations between years in New South Wales, Victoria and South Australia was made on 7 February 2008 (Figure 3.15). There was an immediate increase in both the volume traded and the price of water allocations in the SA Murray as a response to the announcement. Prices also rose in the week before the announcement, suggesting that sections of the market had anticipated it. This is another example of the responsiveness of the market to the release of market information. 38 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Section 4 Entitlement trade 4.1 Volume of entitlement trade 40 in the MDB 4.2 Number of entitlement trades 41 4.3 Prices for entitlement trades 42 4.4 Water entitlement market drivers 43 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

4.1 Volume of entitlement trade Figure 4.1 shows the volumes of entitlement traded in the southern MDB between 1983 84 and 2009 10. The volume was very modest until 2007 08, when it increased significantly. Further significant increases followed in 2008 09 and 2009 10. Figure 4.1: Entitlement trade volumes in the southern MDB, 1983 84 to 2009 10 (ML) Volume of trade (ML) 1 400 000 1 200 000 1 000 000 800 000 600 000 400 000 200 000 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Note: Includes only trades of regulated water from the Lower Darling, NSW Murray, Murrumbidgee, South Australian Murray, Victorian Murray, Goulburn and Campaspe Loddon systems. Sources: NWC (2010), AWMR series; approximate values for years before 1997 98 from the Murray Darling Basin Commission. Figure 4.2 shows the volumes of entitlement traded in the northern MDB between 2007 08 and 2009 10. As in the southern MDB, the volume of entitlement trade increased significantly over the period. Figure 4.2: Entitlement trade volumes in the northern MDB, 2007 08 to 2009 10 (ML) 700 000 600 000 500 000 Volume of trade (ML) 400 000 300 000 200 000 100 000 2007-08 2008-09 2009-10 Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented. Source: AWMR series. 40 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

As demonstrated in Figure 4.3, the mix of entitlement types (by volume) traded has also changed in the past three years. In 2007 08 more than 10% of total entitlement purchases were for lower reliability entitlements. By 2009 10 the proportion of lower reliability entitlements had more than halved to less than 5%. This change in the mix of entitlement types may reflect changing market expectations about the reliability of lower reliability entitlements. Before the drought, lower reliability entitlements received much higher allocations. Figure 4.3: Total entitlement trade in the southern MDB, 2007 08 to 2009 10, by reliability class Proportion of total entitlement trade 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2007-08 2008-09 2009-10 Entitlement trade in the MDB Higher reliability General reliability Lower reliability Note: Higher reliability entitlements include Victorian high-reliability water shares, New South Wales high-security water access licences (WALs) and South Australian high-security water entitlements. Lower reliability entitlements include Victorian low-reliability water shares and NSW supplementary WALs. General reliability entitlements are NSW general security WALs. Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented. Source: AWMR series. Section 4 4.2 Number of entitlement trades It was not possible to obtain data for this report on the numbers of entitlement trades before 2007 08. However, Figure 4.4 shows that the number of trades has increased over the past three years, while the average volume of entitlement trades has decreased. It also shows that the numbers of entitlement trades in the SA Murray, Murrumbidgee and NSW Murray zones have grown steadily over the period. Figure 4.4: Number and average size of entitlement trades, southern MDB, 2007 08 to 2009 10 Number of entitlement trades 6000 5000 4000 3000 2000 1000 0 2007-08 2008-09 2009-10 Lower Darling General NSW Murray Murrumbidgee SA Murray Vic Goulburn Vic Loddon and Campaspe Vic Murray above Barmah Vic Murray below Barmah Average size (ML) of trade 250 200 150 100 50 0 Average size of entitlement trade (ML) Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented. Source: AWMR series. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 41

Figure 4.5 shows the numbers and volumes of entitlements traded in the southern MDB between 2007 08 and 2009 10, by month. It demonstrates that entitlement trading is less volatile in numbers and volumes of trade than allocation trading. This is to be expected, given the long-term nature of the investment. Unlike in allocation trading, there is no clear trading cycle during a water year. Figure 4.5: Number and volume of entitlements traded, southern MDB, 2007 08 to 2009 10, by month Volume of trade (ML) 350 000 300 000 250 000 200 000 150 000 100 000 50 000 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun 800 700 600 500 400 300 200 100 0 Number of trades Volume of trade Number of trades Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented. Source: AWMR series. 4.3 Prices for entitlement trades Prices for entitlement trades have remained relatively constant for the past three years (see Figure 4.6). This is to be expected: entitlements are long-term (usually perpetual) products, while allocations are short-term. Figure 4.6: Average prices for entitlement trades in the southern MDB, 2007 08 to 2009 10 ($/ML) Average entitlement trade price ($/ML) $2500 $2000 $1500 $1000 $500 $0 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May 2007 2008 2009 2010 Higher reliability General security Low reliability Jun Notes: 1 Data for trade outside the southern MDB before 2007 08 was not available for this report. 2 Only regulated trades are presented. 3 Average prices for higher reliability entitlement trades include prices for Victorian high-reliability water entitlements, New South Wales high-security water access licences and South Australian high-security water entitlements. Source: AWMR series. 42 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

However, as demonstrated in Figure 4.7, the average price varies significantly between reliability classes. The variation reflects the market s expectation about the average amount of water likely to be allocated within a year. The concordance between reliability and price suggests that the market understands differences between the products being traded. There has been no clear trend in average prices for entitlement trades within reliability groups; some reliability classes in some jurisdictions have increased in price, while others have decreased. Figure 4.7: Average prices for entitlement trades in the southern MDB, 2007 08 to 2009 10, by state and reliability class $3000 $2500 Average entitlement trade price ($/ML) $2000 $1500 $1000 Entitlement trade in the MDB $500 $0 Victoria low reliability Victoria high reliability NSW general security NSW high security SA high security Section 4 2007-08 2008-09 2009-10 Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented. Source: AWMR series. 4.4 Water entitlement market drivers Unlike outcomes in the water allocation market, outcomes in the water entitlement market are generally driven by long-term concerns, such as the entry or exit of participants in the irrigated agriculture sector or the decisions of investors. Changes to policy and regulation (such as water trading rules) can also drive entitlement trading. Examples of this from 2007 08 to 2009 10 include: + the involvement of the Australian Government in the water entitlement market as a purchaser of water for the environment + rules in the Water Act 2007 governing the transformation of irrigation rights to water access entitlements + the removal of the 10% limit on ownership of entitlements by non-water users, and the addition of exemptions to the 4% limit on entitlement trade out of irrigation districts, in Victoria. Each example is discussed in more detail in this section. 4.4.1 Commonwealth purchases The Australian Government has been active in the water market for the past three years through its purchase of entitlements for environmental purposes under the Restoring the Balance in the Murray Darling Basin program. From 2007 08 to 2009 10, the volume of water entitlements registered per year by the Australian Government grew from 0% to 36% of the total volume of entitlement trade in the MDB (see Figure 4.8). A total of 659 GL was registered in 2009 10. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 43

Figure 4.8: Commonwealth water purchases in the MDB, 2007 08 to 2009 10 2007/08 Other Murray-Darling Basin entitlement trade 770GL, 100% 2008/09 Commonwealth environmental water purchases 65GL, 4% Other Murray-Darling Basin entitlement trade 1533GL, 96% 2009/10 Commonwealth environmental water purchases 659GL, 36% Other Murray-Darling Basin entitlement trade 1159GL, 64% Source: AWMR series. As discussed below, amendments were made to trade-out limits in Victoria to enable the Commonwealth to purchase entitlements in Victoria. Commonwealth entitlement purchases from New South Wales were subject to an embargo in May 2009 and were then restricted to 60 GL in 2009 10. The volume of entitlement trade in 2009 10 would probably have been lower if the Australian Government had not participated in the market. However, it is unlikely that the total 659 GL of entitlement purchases registered by the Commonwealth would otherwise not have been traded, as some of this surplus entitlement would have probably been sold to other willing purchasers. While the Australian Government has become a significant participant in the market, and is responsible for some of the growth in entitlement trade between 2007 08 and 2009 10, there has been an increasing volume of entitlement trading by other buyers. Total entitlement trade volume grew from 770 GL in 2007 08 to 1159 GL in 2009 10, if Australian Government purchases are netted out. 44 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

4.4.2 Transformation A significant proportion (by volume) of water access entitlements in the MDB is held by irrigation infrastructure operators in irrigation areas. Irrigators in those areas hold irrigation rights to access water from the operator, rather than holding statutory rights (entitlements) themselves. Irrigation rights cannot be traded without the operator s consent, while statutory water access entitlements can be traded subject to restrictions imposed by state law. To prevent irrigation infrastructure operators from unreasonably delaying or preventing trade in entitlements (irrigation rights) from their areas, the Australian Government has made rules under the Water Act 2007 (the Water Market Rules 2009) to ensure that rights held by irrigators within an infrastructure operator s area can be transformed into separately held water access entitlements. This allows irrigators to hold the statutory water access entitlements directly, rather than having operators hold the entitlements on their behalf. Once irrigators hold their statutory entitlements directly, the operator cannot restrict trade. Transformation occurs only in New South Wales and South Australia. The ability to transform rights was given effect by the Water Market Rules on 23 June 2009, and included a transitional period until 31 December 2009. Thus, 2009 10 was the first year in which they were in effect. Because of the nature of irrigation across the MDB, the rules apply mainly in New South Wales. Data on entitlement trade out of irrigation infrastructure operator areas is available only from 2007 08. However, as Figure 4.9 shows, there was a significant increase in both the volume and number of trades out of the New South Wales irrigation districts in 2009 10, suggesting that the Water Market Rules may have had an effect on the market. Figure 4.9: Volume and number of trades out of NSW irrigation infrastructure operator districts, 2007 08 to 2009 10 Entitlement trade in the MDB 180 000 160 000 140 000 60 50 Section 4 Volume of entitlements (ML) 120 000 100 000 80 000 60 000 40 30 20 Number of entitlements 40 000 10 20 000 0 2007-08 2008-09 2009-10 Volume of entitlements (ML) Number of entitlements Note: Figures differ from those published in the Australian water markets report 2008 09 due to errors in the previous data. Individual irrigator sales to the Commonwealth may or may not be combined and moved off an irrigation corporation licence as one transfer, consequently data relating to entitlement transformations can be difficult to interpret. Figures for Murrumbidgee Irrigation exclude licence conversions. Sources: Murray Irrigation Ltd; Murrumbidgee Irrigation Ltd; Coleambally Irrigation Co-operative Ltd; NSW Department of Environment, Climate Change and Water; Western Murray Irrigation Ltd. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 45

4.4.3 The 10% limit Before September 2009, the Victorian Government restricted the volume of Victorian water entitlements that could be owned without being associated with a particular piece of land (to be associated with land, a water entitlement must be tied to a water-use licence or water-use registration for particular land). The restriction was originally put in place to address community concerns about speculators buying entitlements and forcing up prices. The limit was 10% for each entitlement type in each water system. At the end of 2008 09, no water systems had reached the limit. However, an increasing volume of water entitlements was held without association with land during 2008 09, partly because of Commonwealth environmental purchases under the Water for the Future program (the Commonwealth does not hold water-use licences for land, so environmental purchases are disassociated from land). By the end of 2008 09, some systems had less than 50% of the limit remaining, including those shown in Table 4.1. Table 4.1: Victorian irrigation districts nearing the 10% limit at the end of 2008 09 Irrigation district Reliability Non-water user limit (ML) Water held by non-users (ML) Volume of limit remaining (ML) % of limit remaining Campaspe High 3 712 2 432 1 280 34% Goulburn High 99 005 64 572 34 433 35% Low 43 690 30 212 13 477 31% Vic Murray High 118 597 60 567 58 030 49% Source: DSE (2010). Low 30 264 17 513 12 751 42% Earlier, in May 2009, the Victorian Government had announced that the 10% limit would be removed once legislative amendments could be put in place. During the early part of 2009 10 the disassociation of water from land (either as trades to those without land and a wateruse licence, or as trades to those choosing to hold their water shares unassociated) continued apace. 3 By 16 September 2009, when the limit was removed, it had been reached for Victorian Murray high-reliability water entitlements. The limits on Campaspe high-reliability, Goulburn low-reliability and Victorian Murray low-reliability entitlements had almost been reached (DSE 2010). Data from Goulburn Murray Water suggests that 50 GL of trades were applied for but delayed until the 10% limit was removed on 16 September 2009. It may also be that a small number of prospective trades were not submitted for approval until after the limit was removed because the proponents knew that they were not going to be approved. 4.4.4 The 4% limit The 4% limit in Victoria limits the net trade of entitlement out of each irrigation area to a maximum of 4% per year (defined as a percentage of the volume of water access entitlement associated with land in an irrigation area), subject to certain exemptions. Unlike the 10% limit, before 2009 10 the 4% limit had restricted the amount of entitlement trade possible. In 2008 09, the 4% rule restricted entitlement trade in most districts. Only trade in low-reliability entitlements in the Campaspe, Central Goulburn and Shepparton districts and all trade in the FMIT and Nyah, Tresco and Woorinen areas was unaffected (Frontier Economics 2009). In addition, because the trade limits were usually reached at the start of the water year, the limit was binding for the full year. 3 This became apparent as Goulburn Murray Water processed trades as part of its start-of-year ballot process to determine which trades would be able to proceed in accordance with the 10% and 4% limits. 46 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

In 2009 10, the Victorian Government announced a number of more extensive exemptions to the 4% limit. Most apply to trades being made to the Commonwealth for environmental purposes. Before then, exemptions were only available for mortgagee sales. The exemptions increased the amount of entitlement trade that could take place, particularly in high-reliability entitlements. While the 4% limit would have restricted net trade out in high-reliability entitlements to 65 GL in 2009 10, the exemptions enabled 141 GL of trade to occur. Figure 4.10 shows the difference between the volume of trade out of irrigation districts allowed within the 4% limit and the volume of trade out that occurred, for all entitlement classes. Figure 4.10: 4% trade-out limit and total trade out of affected irrigation areas in Victoria 180 000 Volume of trade out of irrigation districts (ML) 160 000 140 000 120 000 100 000 80 000 Entitlement trade in the MDB Section 4 60 000 40 000 20 000 0 2007-08 2008-09 2009-10 4% trade-out limit Total trade out Source: AWMR series. The additional exemptions have permitted increased entitlement trade in northern Victoria; however, they only allow materially increased sales to the Commonwealth. The 4% limit will continue to restrict all other potential buyers and sellers. In 2009 10, seven of the nine irrigation areas reached or came very close to the 4% limit for high-reliability entitlements, preventing entitlement trades from occurring. The 4% limit also applies in New South Wales, but has only been reached once in the Murrumbidgee Irrigation area towards the end of the irrigation season in 2008 09 (Frontier Economics 2009). National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 47

Section 5 Trade outside the MDB 5.1 Allocation and entitleme nt trade 50 5.2 Non-MDB trading, by jurisdiction 51

Water markets outside the MDB typically have a much lower level of trading activity than those within the MDB. The reasons for this include the following: + In some areas of the country, there is not yet significant scarcity pressure on water resources, and rights to unallocated water are still being issued. + In some areas, the level of irrigated agricultural development is not sufficient to support a water market. + There is much less connectivity, both natural and engineered, between water systems outside the MDB than between systems within the basin. In many cases this means that holders of entitlements or allocations are restricted to trading with others within smaller water systems. Where those systems contain homogeneous users with similar demand profiles, there may be limited gains from trade in the short term, as all potential buyers and sellers face the same climatic and market conditions. + Enabling mechanisms for trading, such as the unbundling of water rights from land, or statutory water plans are often incomplete. + Reforms to administrative and institutional arrangements for water trading are less developed outside the MDB. Market mechanisms such as registers, trading platforms, trade processing and market information are also often much less developed. This can result in thin markets with lower transparency, which may discourage participation. + Water markets have been operating for a much shorter time outside the MDB, meaning that the market has not necessarily been accepted by irrigators in those areas as a business and risk management tool. However, water trading has occurred outside the MDB in recent years. Parts of South Australia, Western Australia, Tasmania and Queensland have all experienced trade. While trading is possible in both the Australian Capital Territory and the Northern Territory, very little or no trading has occurred in those jurisdictions to date. 5.1 Allocation and entitlement trade Figure 5.1 shows allocation trading outside the MDB from 2007 08 to 2009 10. Allocation trade volumes remained steady for the three years. Reductions in allocation trading activity in Victoria were offset by an increase in trading in Queensland. The decline in allocation trade volumes in Victoria is partly a result of the decommissioning of the Wimmera irrigation zone in 2007 08. Figure 5.1: Allocation trade outside the MDB, 2007 08 to 2009 10 (GL) Volume of allocation trade (GL) outside the MDB 180 160 140 120 100 80 60 40 20 0 2007-08 2008-09 2009-10 Queensland South Australia New South Wales Western Australia Victoria Tasmania Note: Data for trading outside the southern MDB before 2007 08 was not available for this report. Source: AWMR series. 50 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

The volume of entitlement trades fell by 35% from 2008 09 (202 GL) to 2009 10 (131 GL) (see Figure 5.2). Reductions occurred in Queensland, New South Wales, Victoria and Tasmania, while the volume of trade in South Australia and Western Australia grew. Figure 5.2: Entitlement trade outside the MDB, 2007 08 to 2009 10 (GL) Volume of entitlement trade (GL) outside the MDB 120 100 80 60 40 20 0 2007-08 2008-09 2009-10 Queensland South Australia New South Wales Western Australia Victoria Tasmania Trade outside the MDB Note: Data for trading outside the southern MDB before 2007 08 was not available for this report. Source: AWMR series. 5.2 Non-MDB trading, by jurisdiction This section comments on trading in areas outside the MDB. As outlined above, markets for both allocation and entitlement trading are still developing and are relatively thin outside the basin. Therefore, large single trades or other events (such as the transfer of an entitlement as part of a land sale) can result in large changes in year-to-year trading aggregates. When combined with a lack of consistent and reliable data for the years before 2007 08, this means that longer term trends are difficult to identify. Section 5 5.2.1 Western Australia In Western Australia, rainfall deficiencies worsened from 2007 08 to 2008 09 and again from 2008 09 to 2009 10. Most areas of south-west Western Australia received from 60% to 100% of long-term average rainfall in 2009 10. However, areas further north, including the Gascoyne irrigation district, had rainfall of only 20% to 60% of long-term averages. Water levels in many of Western Australia s most important aquifers have been falling over the past few years. In April 2010, drought conditions were declared for the Lower Gascoyne River aquifer, and in 2010 the level of the Gnangara Mound aquifer (which supplies up to 60% of Perth s drinking water as well as water for irrigation and horticulture in the Wanneroo and Swan areas) was at its lowest recorded level. In line with the declining availability of water, trade in licences increased significantly in Western Australia, particularly for groundwater licences in areas managed by the Department of Water (where the volume of licences transferred increased from 486 ML in 2007 08 to 17 635 ML in 2009 10). This increase in the trade in licences also appears to be a function of water management areas becoming fully allocated. In such circumstances, trading becomes the only option for sourcing additional water. Many water management areas recorded no licensed groundwater trades in 2007 08 or 2008 09, but did so in 2009 10. The Goldfields, Gascoyne and South West Coastal areas are examples: a total of eight trades across the three areas accounted for around two-thirds of the total trade in groundwater licences in areas managed by the Department of Water. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 51

Figure 5.3: Trade volumes and prices, Western Australia, 2007 08 to 2009 10 30 000 $25 25 000 $20 20 000 $15 Volume (ML) 15 000 10 000 $10 Average price ($/ML) 5 000 $5 $- 2007-08 2008-09 2009-10 Volume (water allocation trades) Volume (water licence transfers) Average price (water allocation trades) Note: Volumes exclude water savings trades out of Harvey Water. Source: AWMR series. In 2008 09, the average price for water licence transfers across the Harvey Irrigation districts was $320/ML; in 2009 10, it fell to $150/ML. The reason for the sharp fall is not clear. It could be a function of a relatively shallow market and, potentially, poor data quality. Trades in Western Australia display a high level of price volatility throughout the year, not just at the start of the season. This is likely to be for the following reasons: + The state has relatively thin markets: despite recent increases, the number of trades remains low in comparison with eastern states. + Water trading systems are not as well developed as in other states, so market information tends to be less widely available. + The lack of connectivity across aquifers and irrigation districts means it is not possible to sell water to or buy water from areas with relatively less or more water. In addition, individual irrigation areas tend to be relatively homogeneous in the types of crops produced, so different conditions in different commodity markets are unlikely to drive trades. + There is no provision for carryover in Western Australia, so the value of annual allocations trends to zero at the end of the water year. The volume and number of water allocation trades (which are possible only in Harvey Water s irrigation districts) increased to 12 GL in 2009 10 from 7 GL in 2008 09. This occurred despite the absence of interdistrict trading of allocations in 2009 10. 52 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

5.2.2 Tasmania Tasmania s water markets are constrained by limited connectivity between water systems. Most trades occur within major irrigation schemes as a result of property sales. Figure 5.4: Trade volumes and numbers, Tasmania, 2007 08 to 2009 10 120 000 180 160 100 000 140 Volume (ML) 80 000 60 000 40 000 120 100 80 60 40 Number of trades Trade outside the MDB Section 5 20 000 20 0 2007-08 2008-09 2009-10 Volume (water licence transfers) Number (water licence transfers) Volume (water allocation trades) Number (water allocation trades) Source: AWMR series. It is difficult to discern any clear trends in the Tasmanian water market. The number and volume of entitlement trades can be influenced by a small number of relatively large trades and have fluctuated over the past three years. In 2008 09 four transactions accounted for more than half of the total volume of licence trade, and in 2009 10 two trades accounted for 70% of the total volume of water allocation transfers. The Tasmanian Government has announced its intention to significantly expand irrigation infrastructure in Tasmania by building 12 new irrigation projects. The schemes are being developed by the Tasmanian Irrigation Development Board. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 53

The ability to trade water entitlements will be a key feature of the new schemes. It is proposed that: + entitlements arising from the schemes will come unbundled into irrigation rights, which are rights to annual allocations of water, plus delivery rights + irrigation rights will be tradeable to any party + a state-wide register of water entitlements will be established, with published trading rules and oversight of trades. The Tasmanian Irrigation Development Board has also foreshadowed that a state-wide trading scheme may be established if demand warrants it. The development of these schemes should result in an expansion of the water market in Tasmania in future years. 5.2.3 Victoria (outside the MDB) Water trading in Victoria outside the MDB occurs in Southern Rural Water s Werribee, Bacchus Marsh and Thomson Macalister districts. Trade in both entitlements and allocations within the Werribee and Bacchus Marsh districts, which are both on the Werribee River, has been minimal in recent years. This is a result of extremely low allocations, which reached only 8% in 2007 08, 5% in 2008 09 and 14% in 2009 10. Until very recently, no trade has been possible between the Werribee and Bacchus Marsh districts and other districts, and this has also contributed to the shortage of water for trading. Trading has fluctuated in the Thomson Macalister districts in response to levels of supply. Those districts have not endured the rainfall deficiencies that have occurred in other parts of Victoria, and allocations have been at or above 100% in the past few years. In 2008 09, an extra 43% of allocation was also available because Lake Glenmaggie was spilling. Allocation trade rose from 12 GL in 2007 08 to 20 GL in 2008 09 before returning 12 GL in 2009 10. The generally good availability of water has meant that allocation trades account for less than 1% of the available water in any year. In 2010, water trading was permitted for the first time between the Thomson Macalister district and the Bacchus Marsh Werribee system. Trading was limited to water allocations (not entitlements) from the Thomson Macalister trading zone 42B. Trading is possible due to the interconnected grid of pipes between the Thomson Dam, Melbourne and the Bacchus Marsh irrigation area; instead of water being released down the Thomson River, it can be sent to Melbourne and across to the Bacchus Marsh area. Despite trading being possible, no trade between the Thomson Macalister system and the Bacchus Marsh Werribee system occurred. 5.2.4 Queensland (outside the MDB) With the exception of the catchments that make up the northernmost reaches of the MDB 4, Queensland is made up of small hydrologically isolated trading zones. The water market within each zone tends to be shallow due to the small number of market participants and the zone s uniform climatic conditions and agricultural production profile. The price and volume of water traded vary significantly between trading zones. The legislative framework for water trading in Queensland was introduced in 2000. Trading has been possible in the Nogoa Mackenzie Water Supply Scheme and the Bundaberg Supply Scheme since 2003 04. As demonstrated by Figure 5.5, there was initially significant fluctuation in the price of medium security water. As the market in the two water supply schemes has matured, however, a more stable market price for medium reliability water entitlements has emerged. 4 The Border Rivers, Moonie, Condamine Balonne and Warrego, Paroo, Bulloo and Nebine resource operations plan areas. 54 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Figure 5.5: Volume of medium reliability entitlement trade and average price, Nogoa Mackenzie and Bundaberg water supply schemes, 2003 04 to 2009 10 14 000 2500 12 000 2000 10 000 Volume of trade (ML) 8 000 6 000 1500 1000 Price ($/ML) Trade outside the MDB 4 000 500 Section 5 2 000 0 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 Nogoa Mackenzie WSS volume Nogoa Mackenzie WSS price Bundaberg WSS volume Bundaberg WSS price Note: Volumes of trade for all years except 2009 10 relate to the sale of water without land. Sources: Queensland Department of Environment and Resource Management and AWMR series. 5.2.5 New South Wales (outside the MDB) The major trading zone in New South Wales outside of the MDB is the Hunter Valley. Irrigators in the Hunter Valley received 100% allocations between 2007 08 and 2009 10. The price of water entitlements and water allocations in the Hunter tends to be significantly higher than in the rest of the state. In 2009 10 the average cost of general security water entitlements was $2829/ML, compared with the state average of $1318/ML. The higher prices are driven by the type of agricultural production the Hunter is a grape-growing region and hydrological isolation. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 55

Section 6 Summary 6.1 Water allocation market 58 6.2 Water entitlement market 58

6.1 Water allocation market Participation in the water allocation market, particularly in the southern MDB, has grown steadily since the introduction of water trading in the early 1980s. The use of allocation trading mechanisms between trading zones within the southern MDB has also increased significantly, particularly in the past three years. It is likely that this was a response to significantly lower allocation levels in 2006 07 and 2007 08 resulting from the worsening drought. During years in which there were low allocations in the southern MDB, prices for water allocations increased. In 2007 08, the SA Murray and Victorian Murray trading zones were net importers of water, while the Murrumbidgee was the most significant net exporter. 2007 08 was the only year between 2007 08 and 2009 10 that Goulburn was a net exporter of water. Murrumbidgee remained the dominant water exporter in the southern MDB in 2008 09, trading a considerable proportion of the water traded into the SA Murray. 2008 09 was the first year that interzone trade was possible for the Lower Darling. Exports from the Lower Darling rose from 28 GL in 2008 09 to 68 GL in 2009 10, most of it destined for the SA Murray. There was a decline in water exported from the Murrumbidgee to the SA Murray. 2009 10 was the only year between 2007 08 and 2009 10 that the Victorian Murray was a net exporter of water. As allocation levels rose in 2008 09 and then increased more significantly in 2009 10, the price of water allocations fell in response to greater supply; however, the quantity of water allocation trade remained high. The price of water allocations has continued to fall in 2010 11. The water allocation market is responsive to short-term market impacts, such as allocation and carryover announcements, suggesting that the market is relatively mature and informed. 6.2 Water entitlement market Participation in the water entitlement market, particularly in the southern MDB, has also grown steadily since the early 1980s. Unlike outcomes in the water allocation market, outcomes in the water entitlement market are generally driven by long-term concerns, such as the entry or exit of participants in the irrigated agriculture sector or the decisions of investors. Changes to policy and regulation (such as water trading rules) can also drive entitlement trading. Changes that have had an impact on the water entitlement market in the southern MDB in the past three years include: + the involvement of the Australian Government in the water entitlement market to purchase water for the environment + rules in the Water Act 2007 governing the transformation of irrigation rights to water access entitlements + the removal of the 10% limit on ownership of entitlements not associated with land, and exemptions to the 4% limit on entitlement trade out of irrigation districts, in Victoria. Prices for entitlement trades have remained relatively constant for the past three years. This is to be expected: entitlements are long-term (usually perpetual) products, while allocations are short-term products. 58 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Summary Appendix pendix A References 60 75 Abbreviations and acron yms 75 Section 6 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 59

Appendix A Table A.1: Volume of allocation and entitlement trades in the southern MDB, 1983 84 to 2009 10 Water year Allocation trades Entitlement trades 1983 84 1984 85 1985 86 40 000 1986 87 40 000 1987 88 55 000 1988 89 15 000 1989 90 80 000 1990 91 85 000 10 000 1991 92 190 000 15 000 1992 93 90 000 15 000 1993 94 110 000 50 000 1994 95 775 000 55 000 1995 96 495 000 50 000 1996 97 520 000 55 000 1997 98 800 000 90 000 1998 99 689 991 91 484 1999 00 679 948 81 696 2000 01 606 855 87 369 2001 02 912 858 77 209 2002 03 1 102 680 62 193 2003 04 982 612 96 107 2004 05 831 268 75 656 2005 06 871 943 40 359 2006 07 716 214 139 169 2007 08 951 598 549 841 2008 09 1 304 119 1 175 749 2009 10 1 652 013 1 280 075 Note: Includes only trades of regulated water from the Lower Darling, NSW Murray, Murrumbidgee, SA Murray, Victorian Murray, Goulburn and Campaspe Loddon systems. Sources: NWC (2010b), AWMR series; approximate values for the years before 1997 98 from the Murray Darling Basin Commission. Table A.2: Volume of allocation and entitlement trades, northern MDB and non-mdb, 2007 08 to 2009 10 (ML) 2007 08 2008 09 2009 10 Non-MDB allocation trades 201 206 194 Non-MDB entitlement trades 150 202 131 Northern MDB allocation trade 91 857 173 662 136 573 Northern MDB entitlement trade 119 065 492 079 621 849 Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented, as groundwater allocation trades were not reported for NSW in 2007 08 Sources: AWMR series. 60 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Table A.3: Rainfall in the MDB and storage levels of major dams in the southern MDB, 1989 90 to 2009 10 Year Annual rainfall (mm) Total storages (%) 1989 90 522 73 1990 91 433 71 1991 92 568 73 1992 93 510 91 1993 94 325 82 1994 95 530 57 1995 96 543 73 1996 97 444 57 1997 98 573 30 1998 99 578 34 1999 00 557 51 2000 01 403 61 2001 02 277 54 2002 03 442 25 2003 04 466 31 2004 05 444 39 2005 06 279 46 2006 07 475 15 2007 08 452 19 2008 09 417 18 2009 10 796 32 Note: Major dams are Dartmouth, Eildon, Hume, Blowering and Lake Victoria. Long-term average rainfall is 488 mm, based on rainfall measurements in the MDB between 1961 and 1990. Annual rainfall is an average figure for all of the MDB Sources: Bureau of Meteorology (for rainfall data) and Murray Darling Basin Authority (for storage data). Table A.4: Low-, general and high-reliability/security entitlements, southern MDB, by volume Trading zone High Low/General Goulburn 993 921 438 601 Loddon and Campaspe 58 768 26 757 Murrumbidgee 377 435 1 888 070 SA Murray 826 053 Vic Murray below Barmah 867 551 165 204 Vic Murray above Barmah 314 740 135 598 NSW Murray and Lower Darling 199 227 1 745 813 Total 3 637 695 4 400 043 Source: AWMR series. A Appendix National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 61

Table A.5: End-of-season allocations to high- and low-security entitlements, southern MDB, 1998 99 to 2009 10 High-reliability entitlements Lower reliability entitlements Year Vic Goulburn Vic Murray NSW Murray NSW Murrumbidgee SA Murray Vic Goulburn (low) Vic Murray (low) NSW Murray (general) NSW Murrumbidgee (general) 1998 99 100% 100% 100% 100% 100% 0% 100% 93% 85% 1999 00 100% 100% 100% 100% 100% 0% 90% 35% 78% 2000 01 100% 100% 100% 100% 100% 0% 100% 95% 90% 2001 02 100% 100% 100% 100% 100% 0% 100% 105% 72% 2002 03 57% 100% 100% 100% 100% 0% 29% 10% 38% 2003 04 100% 100% 100% 95% 95% 0% 0% 55% 41% 2004 05 100% 100% 97% 95% 95% 0% 0% 49% 40% 2005 06 100% 100% 97% 95% 100% 0% 0% 63% 54% 2006 07 29% 95% 69% 90% 60% 0% 0% 0% 10% 2007 08 57% 43% 50% 90% 32% 0% 0% 0% 13% 2008 09 33% 35% 95% 95% 18% 0% 0% 9% 21% 2009 10 71% 100% 97% 95% 62% 0% 0% 27% 27% Note: Low-reliability water shares in Victoria were created on 1 July 2007. No low-reliability allocation has been made available for the subsequent years. Before that time, this water was referred to as sales water and was not separated from higher reliability water. Sources: NWC (2010b), AWMR series. Table A.6: Water allocation levels and proportions traded, southern MDB, 1998 99 to 2009 10 Year Announced allocation volumes (ML) Allocations sold (ML) Allocations traded as % of announced allocations 1998 99 1 087 6000 591 753 5% 1999 00 9 360 000 585 832 6% 2000 01 11 010 000 411 263 4% 2001 02 10 835 000 700 398 6% 2002 03 6 805 000 974 439 14% 2003 04 7 867 000 815 641 10% 2004 05 7 861 000 861 458 11% 2005 06 8 814 000 856 738 10% 2006 07 4 62 6000 716 214 15% 2007 08 3 164 000 1 289 469 41% 2008 09 4 503 759 1 570 674 35% 2009 10 5 987 428 1 994 533 33% Sources: NWC (2010b), AWMR series. 62 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Table A.7: Number and average size of allocation trades, southern MDB, 2007 08 to 2009 10 Trading zone 2007 08 2008 09 2009 10 Lower Darling 49 30 31 NSW Murray 3568 3866 4350 Murrumbidgee 1909 2168 2692 SA Murray 761 837 1390 Vic Goulburn 3560 3286 3112 Vic Loddon and Campaspe 190 54 18 Vic Murray above Barmah 704 782 610 Vic Murray below Barmah 3615 3139 2308 Average volume of allocation trades (ML) 66 92 114 Source: AWMR series. Table A.8: Average water allocation and average allocation trade price, MDB, 2007 08 to 2009 10 Month Average price ($/ML) 2007 08 Average price ($/ML) 2008 09 Average price ($/ML) 2009 10 Average allocation 2007 08 Average allocation 2008 09 Average allocation 2009 10 July 2.9% 3.1% 2.7% 380 2.9% 3.1% 2.7% 2.9% 3.1% 2.7% 556 590 2.9% 3.1% 2.7% 600 3.8% 4.5% 3.0% August 580 501 200 3.8% 4.5% 3.2% 567 490 278 7.8% 5.4% 3.2% 748 460 393 7.8% 5.4% 3.9% 841 538 9.3% 5.4% 3.9% September 876 591 303 9.5% 6.4% 5.9% 945 534 362 9.5% 6.4% 5.9% 956 497 338 10.6% 9.0% 9.8% 986 486 365 10.6% 9.0% 9.8% October 1056 478 329 12.9% 12.8% 18.6% 1048 398 271 12.9% 12.8% 18.6% 1081 342 204 13.6% 14.7% 22.1% 1117 393 207 13.6% 14.7% 24.6% 1166 387 222 14.5% 14.7% 24.6% A Appendix National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 63

Month Average price ($/ML) 2007 08 Average price ($/ML) 2008 09 Average price ($/ML) 2009 10 Average allocation 2007 08 Average allocation 2008 09 Average allocation 2009 10 November 1023 363 175 14.5% 15.2% 30.0% 991 369 192 16.3% 15.2% 30.0% 904 380 170 16.3% 16.1% 30.7% 683 349 183 16.3% 16.1% 30.7% December 530 319 176 18.5% 17.4% 31.6% 582 344 170 18.5% 17.4% 31.6% 432 311 171 19.7% 19.4% 32.4% 345 305 175 19.7% 19.4% 32.4% January 360 308 21.2% 20.7% 32.4% 322 312 168 21.2% 20.7% 32.5% 289 303 159 23.1% 24.7% 33.8% 258 272 155 23.1% 24.7% 33.8% 207 271 136 23.9% 24.7% 33.8% February 251 283 168 23.9% 24.7% 35.3% 314 281 139 26.1% 24.7% 35.3% 256 282 131 26.1% 24.8% 38.0% 266 282 145 26.1% 24.8% 38.0% March 343 289 132 26.4% 24.9% 39.9% 348 290 117 26.4% 24.9% 39.9% 331 293 109 26.5% 25.0% 44.4% 325 339 87 26.5% 25.0% 44.4% 326 341 92 26.8% 25.2% 47.9% April 364 333 79 26.8% 25.2% 47.9% 377 344 71 26.8% 25.2% 47.9% 380 342 77 26.8% 25.2% 47.9% 357 326 78 26.8% 25.2% 47.9% May 352 324 78 26.8% 25.2% 47.9% 355 322 76 26.8% 25.2% 47.9% 440 338 77 26.8% 25.2% 47.9% 473 339 77 26.8% 25.2% 47.9% June 419 363 74 26.8% 25.2% 47.9% 442 353 82 26.8% 25.2% 47.9% 359 375 82 26.8% 25.2% 49.2% 385 88 26.8% 25.2% 49.2% Note: Allocation levels are the total announced allocation by week for the trading zones in the southern MDB for regulated entitlements. Aggregation includes only tradeable regulated entitlements. Allocation levels are calculated as (volume allocated to regulated entitlements each week (cumulative total)) (volume of regulated entitlements on issue). Source: AWMR series. 64 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Table A.9: Volume and number of allocation trades in the southern MDB, 2007 08 to 2009 10 Year Month Number of trades Volume (ML) 2007 08 July 1 7 August 68 14 801 September 1171 29 319 October 2518 62 180 November 2764 69 478 December 2674 84 778 January 1940 70 771 February 1297 43 513 March 2208 80 484 April 2932 94 781 May 2330 70 973 June 2830 188 081 2008 09 July 385 39 497 August 727 72 350 September 1111 101 829 October 1553 137 542 November 1491 101 496 December 1524 106 012 January 1982 131 825 February 2787 228 766 March 2891 193 426 April 3167 226 004 May 2621 255 186 June 2173 123 441 2009 10 July 178 10 194 August 353 23 125 September 1163 102 851 October 1836 114 503 November 1550 150 664 December 1211 150 951 January 1452 110 098 February 1812 134 359 March 1684 194 701 April 1523 155 894 May 2568 374 299 June 2379 349 806 Source: AWMR series. A Appendix National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 65

Table A.10: Net allocation trade between trading zones, southern MDB, 1998 99 to 2009 10 (ML) Year Lower Darling NSW Murray Murrumbidgee SA Murray Vic Goulburn Vic Loddon and Campaspe Vic Murray above Barmah Vic Murray below Barmah 1998 99 10 172 28 903 39 075 0 7 073 2 263 4 810 4 093 1999 00 8 986 111 654 113 650 1 696 1 117 3 319 2 718 2 908 2000 01 20 009 3 021 30 177 3 255 8 557 4 229 436 436 2001 02 7 816 29 983 31 487 7 261 18 151 6 351 13 859 13 859 2002 03 36 086 14 489 9 001 27 547 21 821 19 072 16 428 2003 04 38 927 34 708 6 010 27 273 1 766 12 939 12 939 2004 05 1 139 2 705 8 026 1 630 26 186 2 686 20 871 20 871 2005 06 2 645 5 896 24 290 47 244 36 763 56 263 56 263 2006 07 46 556 96 788 40 128 39 580 9179 39 915 39 915 2007 08 17 506 139 096 144 375 66 908 17 722 95 023 95 023 2008 09 27 948 134 701 390 147 336 263 172 343 2 206 17 736 24 248 2009 10 67 732 88 009 111 185 252 535 49 000 134 46 900 12 424 Sources: NWC (2010b), AWMR series. Table A.11: Net allocation trade between trading zones, southern MDB, 1998 99 to 2009 10 State NSW South Australia Victoria 1998 99 16 026 483 15 543 1999 00 6 990 1 696 4 919 2000 01 7 147 3 255 3 892 2001 02 9 320 7 261 2 059 2002 03 21 597 9 001 13 850 2003 04 4 219 6 010 15 400 2004 05 9 592 1 630 8 351 2005 06 3 251 24 290 27 743 2006 07 50 232 40 128 10 104 2007 08 156 602 144 375 11 380 2008 09 552 796 336 263 216 533 2009 10 266 975 252 585 14 390 Sources: NWC (2010b), AWMR series. 66 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Table A.12: Rice production, rice prices and water allocation prices, Murrumbidgee, 2005 06 to 2009 10 2005 06 2006 07 2007 08 2008 09 2009 10 Rice average price ($/tonne) 283 346 414 582 528 Rice production (kilotonnes) 1003 163 18 61 205 Water allocation price ($/ML) 37 194 524 382 155 Sources: Rice data, ABARE (2010); 2007 08 to 2009 10 water price data, NWC (2010a); 2006 07 allocation price data, Waterfind (2008:12); 2005 06 allocation price data, Sunraysia Water Exchange website (www.waterexchange.com.au/hosted/sunraysia/). Table A.13: Wine grape production, wine grape prices and water allocation prices, SA Murray, 2005 06 to 2009 10 2005 06 2006 07 2007 08 2008 09 2009 10 Wine grapes average price ($/tonne) 616 881 787 527 520 Wine grapes production (kilotonnes) 1873 1410 1837 1684 1617 Water allocation price ($/ML) 45 a 202 682 347 160 a 2005 06 water allocation price data for the SA Murray was not available for this report. Therefore, this figure has been based on the average cost of water in the Murray Irrigation area in 2005 06 (see www.murrayirrigation.com.au). Sources: Wine grape data, ABARE (2010); 2007 08 to 2009 10 water price data, NWC (2010a); allocation price data, Waterfind (2008:12). Table A.14: Milk production, hay prices and water allocation prices, Goulburn, 2005 06 to 2009 10 2005 06 2006 07 2007 08 2008 09 2009 10 Hay ($/tonne) 144 231 282 233 199 Milk (ML) 10 089 9583 9223 9388 8960 Water allocation price ($/ML) 56 194 735 337 168 Sources: Milk and hay data, ABARE (2010); 2007 08 to 2009 10 water price data, NWC (2010a); allocation price data, Waterfind (2008:12); 2005 06 allocation price data, Sunraysia Water Exchange website (www.waterexchange.com.au/hosted/sunraysia/). A Table A.15: Water allocation trading in South Australia in 2007 08 Week starting Volume of trade (ML) Price ($/ML) 1-Jul-07 8-Jul-07 15-Jul-07 22-Jul-07 Appendix 29-Jul-07 5-Aug-07 580 12-Aug-07 567 19-Aug-07 748 26-Aug-07 841 2-Sep-07 472 876 9-Sep-07 1 538 944 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 67

Week starting Volume of trade (ML) Price ($/ML) 16-Sep-07 5 294 956 23-Sep-07 4 178 986 30-Sep-07 3 690 1 056 7-Oct-07 3 629 1 048 14-Oct-07 7 671 1 081 21-Oct-07 7 964 1 117 28-Oct-07 5 505 1 166 4-Nov-07 4 597 1 023 11-Nov-07 10 677 991 18-Nov-07 4 379 904 25-Nov-07 6 381 683 2-Dec-07 1 464 530 9-Dec-07 4 752 582 16-Dec-07 1 014 432 23-Dec-07 25 345 30-Dec-07 1 275 360 6-Jan-08 742 322 13-Jan-08 536 289 20-Jan-08 757 258 27-Jan-08 568 207 3-Feb-08 281 251 10-Feb-08 2 097 314 17-Feb-08 2 091 256 24-Feb-08 4 563 266 2-Mar-08 3 144 343 9-Mar-08 5 375 348 16-Mar-08 5 356 331 23-Mar-08 3 935 325 30-Mar-08 5 578 326 6-Apr-08 4 042 364 13-Apr-08 5 412 377 20-Apr-08 5 180 380 27-Apr-08 13 266 357 68 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Week starting Volume of trade (ML) Price ($/ML) 4-May-08 2 922 352 11-May-08 1 341 355 18-May-08 1 400 440 25-May-08 510 473 1-Jun-08 2 277 419 8-Jun-08 608 442 15-Jun-08 1 183 359 22-Jun-08 4 385 Source: AWMR series. Table A.16: Proportion of total entitlement trade in the southern MDB, 2007 08 to 2009 10, by reliability class 2007 08 2008 09 2009 10 High reliability 39% 30% 45% General reliability 50% 62% 50% Low reliability 11% 8% 5% Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented, as groundwater allocation trades were not reported for NSW in 2007 08. Source: AWMR series. Table A.17: Number and average size of entitlement trades, southern MDB, 2007 08 to 2009 10 Trading zone 2007 08 2008 09 2009 10 A Lower Darling 20 15 109 NSW Murray 152 383 659 Murrumbidgee 73 411 536 SA Murray 180 313 700 Vic Goulburn 1140 1337 1465 Vic Loddon and Campaspe 30 55 96 Vic Murray above Barmah 320 440 387 Appendix Vic Murray below Barmah 716 996 1094 Average volume of trade (ML) 209 189 172 Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented, as groundwater allocation trades were not reported for NSW in 2007 08. Source: AWMR series. National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 69

Table A.18: Number and average size of entitlement trades, southern MDB, 2007 08 to 2009 10 Year Month Number of trades Volume (ML) 2007 08 July 4 38.1 August 24 10 722 September 117 11 240 October 304 52 543 November 281 26 365 December 247 28 418 January 290 26 904 February 259 31 561 March 271 22 924 April 231 17 919 May 257 19 705 June 288 31 042 2008 09 July 291 51 246 August 336 56 867 September 494 81 517 October 451 120 329 November 420 134 536 December 332 75 000 January 291 293 823 February 269 60 161 March 349 174 929 April 293 83 956 May 352 195 882 June 293 27 008 2009 10 July 376 61 798 August 523 224 121 September 733 137 463 October 454 78 571 November 555 110 660 December 559 115 747 January 525 102 085 February 444 133 364 March 562 146 782 April 385 50 841 May 261 38 545 June 362 52 117 Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented, as groundwater allocation trades were not reported for NSW in 2007 08. Source: AWMR series. 70 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Table A.19: Average prices for entitlement trades in the southern MDB, 2007 08 to 2009 10 ($/ML) Year Month High-reliability General reliability Low-reliability 2007 July 1717 750 August 1679 877 100 September 1787 869 138 October 1581 759 224 November 1579 955 244 December 1626 766 184 2008 January 1740 737 194 February 1787 863 204 March 1815 910 211 April 1738 845 250 May 1745 888 171 June 1841 895 231 July 1322 886 85 August 1702 631 144 September 1679 877 158 October 1384 1040 160 November 1537 932 123 December 1636 1141 159 2009 January 1246 905 131 February 1642 1058 110 March 1706 1050 208 April 1517 939 260 May 1527 1118 113 June 1740 1043 136 July 1591 774 73 August 1828 1063 115 September 2012 1067 115 October 2038 649 172 November 2106 1045 99 December 1868 955 110 2010 January 1820 1096 107 February 1972 1146 138 March 1827 1140 142 April 1791 1242 124 May 1646 1201 119 June 1601 1106 134 Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented, as groundwater allocation trades were not reported for NSW in 2007 08. Source: AWMR series. A Appendix National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 71

Table A.20: Average prices for entitlement trade in the southern MDB, by state and reliability class ($/ML) 2007 08 2008 09 2009 10 Victoria low-reliability 209 182 225 Victoria high-reliability 1678 2165 2140 NSW general security 1139 1157 1189 NSW high-security 2722 2424 2776 SA high-security 2286 2316 2068 Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Only regulated trades are presented, as groundwater allocation trades were not reported for NSW in 2007 08. Source: AWMR series. Table A.21: Commonwealth water purchases in the MDB, 2007 08 to 2009 10 (ML) 2007 08 2008 09 2009 10 Commonwealth environmental water purchases 0 65 659 Private Murray Darling Basin entitlement trade 770 1533 1159 Source: AWMR series. Table A.22: Volume and number of trades out of NSW irrigation infrastructure operator districts, 2007 08 to 2009 10 2007 08 2008 09 2009 10 No. of entitlements 5 8 56 Volume of entitlements (ML) 101 790 5027 164 831 Note: Figures differ from those published in NWC (2009) due to errors in the previous data. Individual irrigator sales to the Commonwealth may or may not be combined and moved off an irrigation corporation licence as one transfer. Figures for Murrumbidgee Irrigation exclude licence conversions. Sources: Murray Irrigation Ltd; Murrumbidgee Irrigation Ltd; Coleambally Irrigation Co-operative Ltd; NSW Department of Environment, Climate Change and Water; Western Murray Irrigation Ltd. Table A.23: 4% trade-out limit and total trade out of affected irrigation areas in Victoria 4% trade-out limit Total trade out 2007 08 99 534 79 846 2008 09 96 125 90 383 2009 10 92 030 166 341 Source: AWMR series. 72 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

Table A.24: Allocation trades outside the MDB, 2007 08 to 2009 10 (GL) State 2007 08 2008 09 2009 10 Queensland 90 161 161 New South Wales 1 8 4 Victoria 90 20 12 South Australia 4 8 0 Western Australia 13 9 13 Tasmania 3 0 4 Total 201 205 194 Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Source: AWMR series. Table A.25: Entitlement trades outside the MDB, 2007 08 to 2009 10 (GL) State 2007 08 2008 09 2009 10 Queensland 71 46 41 New South Wales 14 16 8 Victoria 6 14 11 South Australia 2 14 20 Western Australia 0 8 24 Tasmania 57 104 27 Total 150 202 131 Note: Data for trade outside the southern MDB before 2007 08 was not available for this report. Source: AWMR series. A Table A.26: Trade volumes and prices, Western Australia, 2007 08 to 2009 10 2007 08 2008 09 2009 10 Volume (water allocation trades) (ML) 13 169 9004 12 964 Volume (water licence transfers) (ML) 2238 8491 24 360 Average price (water allocation trades) ($/ML) $20 $14 $20 Note: Volumes exclude water savings trades out of Harvey Water. Source: AWMR series. Appendix National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 73

Table A.27: Trade volumes and number, Tasmania, 2007 08 to 2009 10 2007 08 2008 09 2009 10 Volume (water licence transfers) (ML) 56 515 103 679 26 913 Volume (water allocation trades) (ML) 2 913 249 4 146 Number (water licence transfers) ($/ML) 79 150 163 Number (water allocation trades) ($/ML) 15 7 12 Source: AWMR series. Table A.28: Volume of medium reliability entitlement trade and average price for the Nogoa Mackenzie Water Supply Scheme and the Bundaberg Water Supply Scheme, 2003 04 to 2009 10 Nogoa Mackenzie WSS Volume (ML) Nogoa Mackenzie WSS Price ($/ML) Bundaberg WSS Volume (ML) Bundaberg WSS Price ($/ML) 2003 04 180 2 247 1 237 1 408 2004 05 6 115 1 559 2 258 1 426 2005 06 965 2 149 4 485 956 2006 07 5 193 1 087 7 857 858 2007 08 5 644 1 074 3 756 776 2008 09 12 348 914 3 760 765 2009 10 2 720 8 578 799 Note: Volumes of trade for all years except 2009 10 relate to the sale of water without land. Sources: Queensland Department of Environment and Resource Management and AWMR series. 74 National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10

References ABARE (Australian Bureau of Agricultural and Resource Economics) 2010, Australian Commodities, June. DSE (Department of Sustainability and Environment) 2010, Water trade in Victoria 2009 10, DSE, Melbourne, 13 14. Frontier Economics 2009, Volumetric restrictions on water entitlement trade: a report prepared for the ACCC, available at www. accc.gov.au (accessed 1 March 2011). NWC (National Water Commission) 2008, Australian water markets report 2007 08, NWC, Canberra. NWC (National Water Commission) 2009, Australian water markets report 2008 09, NWC, Canberra. NWC (National Water Commission) 2010a, Australian water markets report 2009 10, NWC, Canberra. NWC (National Water Commission) 2010b, The impacts of water trading in the southern Murray Darling Basin: an economic, social and environmental assessment, NWC, Canberra. NWC (National Water Commission) 2011, Strengthening Australia s water markets, NWC, Canberra. Office of Water 2009, Final Northern Region Sustainable Water Strategy, Victorian Department of Sustainability and Environment, Melbourne. Ribbons C 2009, Water availability in New South Wales Murray Darling Basin regulated rivers, NSW Department of Water and Energy, Sydney South Australian Government 2007, Bleak outlook for irrigation allocations, media release, 30 October. Waterfi nd 2008, 2007 08 Annual water market report, 28. Waterfi nd 2009, 2008 09 Annual Murray Darling Basin water market report. Abbreviations and acronyms AWMR series GL Australian water markets reports series gigalitre ML megalitre National Water Commission Australian water markets: trends and drivers 2007 08 to 2009 10 75